Finance Committee on April 28th, 2015

[Chris Matier]

Yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks for that clarification.

I asked the governor, Mr. Poloz, about estimating, predicting, forecasting out into the future. I think the joke is that meteorologists were created to help make economists look good. Trying to predict the future is very difficult, even two, three, or five years out. But in some of your reports you're going out 50 or 60 years, whether it's the TFSA or health care.

How do you base those kinds of projections with any sort of reliability, and why do you go out that far?

[Mostafa Askari]

When we actually go that far, we don't really call it a forecast; it's actually a scenario. This is very standard practice in many international organizations and other organizations like ours in other countries. You do this kind of long-term analysis to provide a kind of picture of where things are going if everything else remains constant, if the policies don't change.

That's why in our fiscal sustainability report, for example, we make certain assumptions, which are mostly reasonable assumptions, and we see what happens over a very long period of time in terms of government fiscal structure and debt.

It's the same thing as, for example, the chief actuaries do for the CPP or other programs that have long-term impacts. One does look at the long-term performance of those programs to get a sense of where things are, whether certain adjustments are needed or not. We don't call them forecasts, in that sense. These are projections based on the current assumptions.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Okay. Thank you very much.

Looking at demographics, my background was marketing. I enjoyed microeconomics and macroeconomics, and demographics was a big aspect. With regard to the demographic shifts happening within the Canadian population and with business owners, what's your prediction of long-term economic prosperity for Canada?

[Mostafa Askari]

Over a very long period of time, we think the potential growth in Canada will be around 1.5%. That is mainly because of the impact of the demographics on the Canadian economy. In our last fiscal sustainability report, what we had was the potential growth, over a very long term, at about 1.5%. Now, that's consistent with the changes in Canadian demographics.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you for that.

As far as looking at the 1.5% and 2% goes, I think that percentage is what we're looking at with inflation as well with the Bank of Canada's prediction as far as inflation is concerned. Is that correct? Is that what you're anticipating?

[Mostafa Askari]

With inflation, normally the assumption is that we'll stay with the target inflation, which is 2%—that's right—in the long term.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

One of the other committees that I've been on for just over nine years is the international trade committee. When we started in 2006, we had five free trade agreements. We've added 38 additional, so 43 in additional trade agreements. From the PBO's perspective, do these agreements help diversify our trade balance and support our manufacturing sector?

[Mostafa Askari]

In general, sir, economists believe that freer trade is better than not freer trade. Certainly in principle those free trade agreements should help to increase the productive capacity of the economy, in general. How big they are...and that depends on their marginal impact. We already have free trade with the United States, which is our main trading partner.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

One of the other areas we're trying to expand is the small and medium-sized enterprises. The majority of them have been trading with our number one trading partner, the U.S., but we're trying to open new markets. One of the ways we're also helping our small businesses is by reducing the tax from 11% to 9%.

I'm wondering if you could elaborate on what your perspective is on the reduction of the small business tax rates. How will that lead to small business owners reinvesting in their companies, in their employees, in the future?

[Mostafa Askari]

My understanding is that—

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

And what will be the effect on the GDP overall?

[Mostafa Askari]

Yes. My understanding is that the total impact of the 2% decline in that tax rate over the five years would be about $1.2 billion. Right now, that is about 1/20th of a percent of GDP. In an overall context, that amount is not very large in terms of the impact on the Canadian activity.

Certainly, individual companies and enterprises that benefit from that could have some more activities and increase their production and their operation, but overall the impact on the economy, for such a small dollar amount, is not very large. We haven't done the specific, individual impact of those measures. We've done a very overall impact of the budget measures, which we have shown in our projection: that in the very short run, the positive impact is small—

[The Chair, Conservative, James Rajotte]

One minute.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Even in those small businesses, the economic engine that drives our economy, you haven't really done an analysis to date yet. Is that something you're looking at doing?

[Mostafa Askari]

We can certainly look at that specific measure and provide an estimate to the committee, if you wish.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That would be interesting.

I have one last question in my last 30 seconds. Do you feel a balanced budget, or a surplus in this case, has an impact on Canada's economic growth?

[Jean-Denis Fréchette]

I will ask Scott to answer that question.

[Scott Cameron, Economic Advisor, Analyst, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

In 15 seconds?

[Jean-Denis Fréchette]

In 15 seconds.

[Voices]

Oh, oh!

[Scott Cameron]

I think our point usually with balanced budget legislation is that it's a very complex law with many unintended consequences. If you're going to restrict the fundamental prerogative of the executive, there needs to be a very good reason for that.

Right now, we see that the fiscal outlet for the federal government is terrific. The outlook looks good. But certainly, if it were to successfully restrain, there are some benefits that could come in terms of increasing the national savings rate and being able to apply the money we're spending now on public debt charges to other programs.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cannan.

I would just caution, colleagues, that these are very good questions, but we need to leave enough time for the witnesses. We're all going over time. I would ask you to please stay within your time.

Mr. Fréchette, briefly.

[Jean-Denis Fréchette]

Thank you, Mr. Chair.

I just want to mention something on balanced budget. One of the principles is that compliance with legislation should be measured and monitored by an independent authority.

I don't mean to speak for my own bailiwick.

As legislators, though, you should consider PBO as being that organization to monitor the legislation.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Dionne Labelle, you may go ahead.