Good afternoon, Mr. Chair, Vice-Chair, and members of the committee. Since you introduced my colleagues who are at the table it's going to be a shorter presentation.
Thank you again for the invitation to appear and discuss the recent economic and fiscal research published by the PBO team.
In recent weeks, the PBO team has published four reports discussing pressing fiscal and economic issues. All highlight issues for short-, medium- and long-term federal fiscal management that should receive further parliamentary attention. Two of our papers highlighted questions regarding how the government manages its short-term fiscal targets.
Our analysis of the employment insurance account demonstrates that Parliament has passed legislation that sets premium rates higher than necessary over the short term, in apparent conflict with the intended management of the program.
Our report on balanced budget legislation should be of great interest to your committee because it is a theme of your pre-budget consultations. This report offers parliamentarians a solid source of analysis and information that could be very useful when they review this topic. They will have to identify the incentives that such legislation can create in terms of policy making to ensure that potential incentives that go against economically and socially optimal fiscal management are mitigated.
Over the medium term, the challenges relate to how much of the projected surplus can be allocated toward permanent fiscal measures. As the “Economic and Fiscal Outlook Update” highlights, we now expect Canadian economic growth in 2014 to be higher than originally anticipated in our April outlook. As a result of this, we projected that the budget would move into a surplus this year, following six years of deficits. On average, we projected annual surpluses of $8.8 billion over the outlook; however, measures announced on October 30, 2014, last week, have eliminated roughly half of this surplus, as shown in table 1 and table 2 attached to my remarks.
Much of the remaining fiscal room over the next two years is the result of temporary policies such as the direct program expenses operating freeze, the EI premium rate freeze, and asset sales, as shown in table 3. There is no longer any fiscal room for permanent tax cuts or spending increases. Introducing additional tax relief or spending initiatives would increase the risk of returning to deficits even further.
Over the long term, Parliament will need to consider the best policy response to the economic and fiscal consequences of an aging population, particularly with respect to health care costs. Our fiscal sustainability report highlights that the federal government is able to meet these demographic challenges with considerable fiscal room to spare. If the government takes a long-term approach to fiscal management, then there is room to maintain a sustainable debt burden while increasing borrowing for permanent tax relief or new spending by as much as 1.4% of GDP, or $28 billion in 2014-15. This increased borrowing would then be repaid as demographic pressures drop dramatically after 2033.
In conclusion, these reports were prepared because of Parliament's interest in these issues and, as I mentioned, the specific interests your committee, in particular, had in some of them.
We also remain dedicated to find new ways and approaches for our reports to meet your needs.
My colleagues and I will be happy to respond to questions you may have regarding our “Economic and Fiscal Outlook” or any other relevant matter.
Thank you, Mr. Chair.