Evidence of meeting #120 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was economy.
A video is available from Parliament.
5:40 p.m.
NDP
5:40 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The government has to find the funds in the other areas of operating expenditures, but that's something we talked about, an issue we raised in our April report. Managing operating expenditures is therefore a challenge for the government since collective agreements show that the wage increase is about 1.5%. Right now, the growth rate in operating expenditures is about 0.8%. So there is a difference between the two. It is a challenge for the government to manage operating expenditures.
5:40 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
In other words, for the moment, it is not viable for this period.
5:40 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
No, of course. In addition, it probably raises concerns too.
5:40 p.m.
Conservative
The Vice-Chair Conservative Pierre Poilievre
Your time is up, Mr. Dusseault. Thank you.
Mr. Grewal now has the floor.
5:40 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you, Mr. Chair.
You've aged considerably since the last time.
5:40 p.m.
Conservative
5:40 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you to the witnesses for coming. I really appreciate it.
Our government committed to reducing the federal debt-to-GDP ratio. In our economic forecast, we had it getting to 31% in 2020-21, and your office is projecting it will fall to 29%.
What is the reason for the 2% difference?
5:40 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The trajectory for the fiscal deficit has changed. It's lower now than what the government was forecasting at the time and what we are forecasting right now. This translates into a lower debt-to-GDP ratio relative to what was predicted before.
5:40 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
You commented in your report that the government has the flexibility within its current fiscal plan to reach its medium-term debt-to-GDP target.
Can you expand on that a little bit?
5:40 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The only thing that means is that mathematically, since the target was 31% and now they have 29%, they have reached it, so there is that gap. The gap between 29% and 31% is the extra room, in the sense that if they want to maintain that 31%, then they have this room.
This is not a recommendation or anything like that. It's just explaining mathematically the difference between the two.
5:40 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
What do you see as the biggest challenges for growth in the Canadian economy over the short term and long term?
5:40 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The biggest challenges...? That's a very good question.
5:40 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Productivity gains...?
5:40 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Of course, yes, productivity gains. Productivity is always an issue for the Canadian economy.
As you heard from the governor, recently we have seen an increase in productivity. Whether it is sustainable over time or not is the major question. Certainly it's not sustainable at the rate we have seen in the past few quarters, but definitely this is a major issue for the economy. It requires investment and better export performance in the economy. All those things, obviously, are challenges that any economy faces. How you resolve them, how you achieve that growth, is another question that I cannot answer.
5:45 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
The economy has grown really well, at a higher rate than expected this year, so the government is obviously considering that there will be a bit of a slowdown going into the balance of this year and into 2018. Will trade and the uncertainty with our partners down south have an impact on the Canadian economy, or is the uncertainty creating an impact on the Canadian economy already? What do you think?
5:45 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
As Chris mentioned earlier, we haven't taken into account explicitly in our projection the issue of trade and uncertainty with NAFTA and the negotiations with the United States, because it's very hard to know exactly what is going to happen and how the negotiations are going to end finally. There is certainly a downside risk, if the negotiations don't go in our favour.
On the other hand, there are other things that we have not taken into account in that regard. The U.S. economy may actually perform much better than we are assuming in our projection, given that they are planning to significantly reduce their taxes and invest in infrastructure. Those things are on the two sides of this, and we haven't taken them into account.
Trade, though, is always an important issue for Canada, given that we are a small, open economy. While that uncertainty is important, we are expecting, as I said, that trade will contribute to growth over the next five years. This expectation is always subject to some risk and uncertainty, naturally.
5:45 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
You mentioned a strong U.S. economy. How does that benefit the Canadian economy? Is a stronger U.S. economy good for the Canadian economy?
5:45 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Certainly. The stronger U.S. demand will certainly boost our exports. That's always the case. We are highly integrated with the U.S. economy, so any positive change in the U.S. will affect us positively.
5:45 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
What about the Canadian dollar relative to the U.S. dollar? Is there going to be a happy medium there, in terms of Canadian dollar strength?
5:45 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The Canadian dollar has some impact, certainly, on our trade. Where it goes and how it evolves over time will have an impact. The Canadian dollar, however, always fluctuates. Our projection is a very conservative, prudent projection for the Canadian dollar. It underlies our projection. This is not a major factor, in that sense.
5:45 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
There was a report in a book issued last week on productivity that said Canada is not meeting its productivity potential because of a shortage of people—there's a shortage of Canadians—and that if we were to increase immigration levels, productivity would also increase and be very good for the Canadian economy. This may be outside the scope of the parliamentary budget officer's mandate, but I would love your comments on that.
5:45 p.m.
Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
In general, I think linking productivity growth to immigration is a stretch because it depends on what immigrants will do. That requires investment and other factors that will boost productivity.
Productivity is a complicated issue that is very hard to track and understand. If you look at what different governments have done over the past 20 to 25 years, many things that are considered to be the right things to do to boost productivity have been done. Unfortunately, except for the last few quarters when we have seen a boost in productivity, we haven't seen the results of those policy measures. We have seen tax cuts, investment in innovation, those kinds of things, but we haven't seen the result. In one sense it's a puzzle for policy-makers in terms of how to deal with it.
5:45 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you.
Turning then to Mr. Albas. We'll go at least six minutes, Dan.