Evidence of meeting #15 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.
1:10 p.m.
Economic Advisor, Analyst, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament
Certainly. On that note, we started off at 0.35% of GDP in 2029, and by the end of our outlook here—I think we showed up until 2065—that drops to 0.15% of GDP. So it halves, basically, over the outlook. That's a result of these demographic movements in the program parameters.
1:10 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I think it is a point worth taking. Developed economies across the world do face demographic challenges, but this adjustment in policy in returning the old age security and GIS from ages 67 to 65, where we do note that our predecessor announced this change in Switzerland, without consultation with Canadians, actually does not in any way impair our financial wherewithal or flexibility as we move forward. That's my interpretation. You don't have to comment, but I just wanted to put that out there as well.
Mr. Chair, I do wish to give a minute of my time to Mr. Champagne.
1:10 p.m.
Liberal
François-Philippe Champagne Liberal Saint-Maurice—Champlain, QC
Thank you, Mr. Chair.
I thank Mr. Fréchette and all his colleagues for being here with us.
You know that we have a great deal of respect for your work and we are happy to see you here today. I can assure you that the work you do, namely to inform Canadians and parliamentarians, is important to us. I can assure you, Mr. Fréchette, of our full co-operation, now and in the future, for everything you do.
I would like to get back to the issue of prudence, which is very important. Before meeting with you, we met with the Governor of the Bank of Canada, who told us about the volatility of the global economy. The Canadian economy is about 2% of the global economy. We examined the significant risks in the global economy. We talked about China and the United States. We could also talk about Brazil. The International Monetary Fund recently downgraded its projection for Canada's economic growth.
How have you integrated the macroeconomic risks in the global economy in your projections? It is important to look at what is happening in the world. All economic players agree that there is a lot of volatility. Ms. Lagarde spoke of a low-growth era. Therefore we think it appropriate to be prudent.
Please tell us about the macroeconomic measures you have considered or the risks associated with the global economic volatility that you took into account in your projections.
1:10 p.m.
Parliamentary Budget Officer, Library of Parliament
Thank you for your support to the Parliamentary Budget Officer. Also, we are very happy to see that, in your election platform, you spoke of a clearer and stronger mandate. We appreciate that.
I will ask Mr. Matier to speak about prudence. He is Mr. Prudence in the parliamentary budget office. That is one of his interests, so he will talk about it in detail.
Thank you.
1:10 p.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
In our projection we incorporate the external outlook essentially through the U.S. economy and through commodity prices, as well as the economy of the rest of the world, which we look at, and it is informed by the International Monetary Fund.
In our recent projection, we made significant downward revisions to the outlook for U.S. real GDP growth from 2.6% to 2.1%, and from 2.6% to 2.3%. As well, we reduced significantly the outlook for commodity prices, reflecting the weaker global environment.
These are the main channels that are the global macroeconomics that are affecting the Canadian economy.
At the same time, we have a fiscal policy that provides an increase to aggregate demand in the economy and a monetary policy that maintains its interest rate at current levels to accommodate this. This provides an offsetting stimulus to the economy.
On the question of prudence, our projections are what we call balanced risk, in that we think the upside and the downside possibilities are roughly balanced. As a forecaster, this is what you want to do if you are concerned about forecast accuracy. If you want to minimize the size of your errors, you want to take into account the balance of risks.
A prudent forecast is different in that it wants to ensure, with a high degree of probability, meeting or exceeding a target.
They may sound like the same thing, and it may sound prudent in both cases, but we think of them as distinct approaches to forecasting.
In the current budget, our reading of it, based on the fall update and the February backgrounder, is that the forecast adjustment had been used to balance the risks the government sought to the private sector outlook, and not so much as prudent budgeting. If the government's decision is to make this adjustment to increase the degree of prudence, or ensure with a high degree of probability achieving its target, then it can be transparent and say, “We are making a prudent decision”. In my reading, and doing a word search in the budget document, the word prudent does come up, but not in that context.
1:15 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you.
If you are suggesting the minister use the word prudent more often, there is no question.
Mr. Aboultaif.
1:15 p.m.
Conservative
Ziad Aboultaif Conservative Edmonton Manning, AB
Thank you very much.
We know you run into big uncertainty over what's happened with the international economy and the decline of commodities, which were for the longest time the main engine of what's going on, and I know the kind of growth that we've seen in the past.
We have a federal budget that suggests we're borrowing $30 billion. Canadians are asking about this large sum of money that we are borrowing just the first year and moving forward for the next years. The question always arises, what is the estimate of the economic impact of this new Liberal spending?
It's important to know that from the expectations, or the estimates that the budget has come up with, versus what you can see from your perspective. How can we balance those views? Do you see that the estimate was wishful, or what is the basis of reality?
1:15 p.m.
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
Thank you.
We have taken into account the impact of the fiscal measures the government introduced in the budget and before the budget, so our projections reflect those. We have shown the impacts as being 0.05% growth in the first year, in 2016, and about 0.03% in the second year, in 2017.
That's slightly different from what the government had proposed, but as we said earlier, those kinds of small differences in terms of the impact are a function of the assumptions that you are making in your models and the multipliers you get from your models. It is explicable. You can explain those differences, it's not major.
1:15 p.m.
Conservative
Ziad Aboultaif Conservative Edmonton Manning, AB
The next question comes about the job creation. There is an estimate there. I believe you took aim at the finance minister on the job creation calculations. Can you explain how he got it wrong?
I believe in the United States they went through the same thing in the past, in 2008-09, and there was at least some calculation method over spending, or a stimulus package versus job creation. How did the finance minister get it wrong in Canada since, in my opinion, the numbers don't add up? Probably your opinion is the same or close enough on the same level, too.
1:20 p.m.
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
Sir, we wouldn't say that he got it wrong. It is an estimate. We have an estimate that is slightly different. As I said, you have to look at these kinds of estimates and results as a range of possibilities rather than precise estimates.
When the Department of Finance estimates jobs at 100,000, it is something that is coming from the models they have, with the assumptions they have made. We have an estimate of about 60,000. You can look at it as a range of possibilities, not necessarily precise numbers.
1:20 p.m.
Conservative
Ziad Aboultaif Conservative Edmonton Manning, AB
There is a huge gap right there. Really, anyone can say, this is the way I measure, and this is the result I expect. On the ground, Canadians need some clear answers. They expect strong, solid, grounded answers to what the spending is and what the outcome is going to be.
1:20 p.m.
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
Unfortunately, these things cannot be precise. Another thing is that over time, it will be very hard to determine who was right or wrong, because things will change over time. In the next two years, we won't know whether 100,000 jobs were created because of the programs, or 60,000. It is impossible to do that.
1:20 p.m.
Liberal
The Chair Liberal Wayne Easter
Okay. I have to cut you off there.
I will take two more questions in this discussion period, from Mr. Grewal and Mr. Liepert. Then we are going to move to Bill C-2, and we'll limit the questions to three minutes, if we could, to keep it pointed on Bill C-2.
Mr. Grewal, go ahead.
1:20 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you, Mr. Chair.
I am going to jump right into it. In your report this morning, you are forecasting lower deficits than the minister and the government are. You are saying that it is predominantly because of the $6-billion fiscal impact that the government has put in place.
Are you saying that building in a fiscal impact is not a good decision? The government has made a commitment to be open and transparent with Canadians. As economic conditions change, we will update Canadians.
The $6-billion fiscal impact, although larger than in previous years, is meant to ensure.... There have been a lot of fluctuations in global commodity prices, which will affect the Canadian economy.
Why is it that you are building a lower fiscal impact into your report, given that international commodity prices are still very volatile?
1:20 p.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
I'll respond quickly. I think it is helpful to look back. There have been significant revisions to oil prices and commodity prices since the late 2014 period. Now we are at a level where it is unlikely that we are going to see the same kind of downward revisions. I don't think the price of oil can go negative. We are around $40 right now.
Subtracting that $40 billion from nominal GDP is, in some ways, almost like thinking that oil is going to keep falling to minimal price levels. It is a possibility. It could be a tail risk, but again, tail risks have very small probabilities attached to them.
1:20 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
You are basically saying that because the oil price has levelled off at $35 to $40 per barrel, the government is doing too much in its $6-billion fiscal impact assessment.
1:20 p.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Essentially. In late 2014, remember, oil was over $100, and now it is down to $60. Over that period, that's a nominal GDP, I think the revision might be around $80 billion for 2016 or 2017 levels. It is almost like thinking of below $20, maybe $10 per barrel.
1:20 p.m.
Liberal
Raj Grewal Liberal Brampton East, ON
I still think it is prudent budgeting on the part of the government to ensure that there is this flexibility. In a previous career, I was an analyst. We always used to build these things in, even on the smallest things. I used to be at a beverage company. We used to do it on our commodity, which was, at that time, the price of oranges, the fluctuation there and the exchange rate.
I still think it is very good fiscal policy to ensure that the $6-billion contingency is honest with Canadians. We cannot control certain things in terms of commodity prices, but let's not belabour the point. Let's move on.
You also say in your report that the federal debt-to-GDP ratio will be at a lower level by 2020-21; that moving forward—you have extended your projection over five years—given current fiscal policy and current fiscal structure, the government is doing a good job to help grow the economy; and that our investments are sound, given our economic position today. Is that true? What are your comments on that?
1:25 p.m.
Parliamentary Budget Officer, Library of Parliament
That's what we said. What we said is that in terms of fiscal sustainability in the long term, if everything stays as it is right now and you don't introduce new measures, what we know right now and what you see as maintained over the long term is exactly the graph you have in figure 6. Eventually the debt-to-GDP ratio will go to zero. That means that the government has fiscal sustainability.
By the way, we are going to have a report in July or June, our fiscal sustainability report, which is the report that covers all the details of those kinds of measures.
1:25 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you both.
We'll go to Mr. Liepert, but I expect that when we're into the next round of questioning we may still need you, Mr. Matier and Mr. Cameron.
Let me ask Ms. Lao and Ms. Malanik to come to the table as well, so that they are here for Bill C-2.
Mr. Liepert.
1:25 p.m.
Conservative
Ron Liepert Conservative Calgary Signal Hill, AB
I just want to pursue a little bit more the modelling you used relative to jobs, because one of the things we continue to hear is that this particular budget is an investment in infrastructure, and yet in the first two years, if my eyesight is still correct, the actual investment in infrastructure is only in the range of $10 to $12 billion.
There is, however, other government spending, which would include—I don't know—CBC, as an example; presumably, for that extra several hundreds of millions of dollars annually, there are going to be jobs created there.
Did you do any modelling as to where these new jobs, whether it's 50,000 or 150,000, are going to be created, how much is really going to come out of infrastructure spending, and how much is going to come out of other spending?
1:25 p.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Yes. In preparing our estimates of the job impact, we followed Finance Canada's mapping of the measures into the targeted sectors, and so in preparing those estimates we have a jobs impact by high-level sector. If it was measures to support low- and modest-income households, there would be a measure for that.
Other government spending, as you indicated, would have a jobs impact number as well. I don't have those numbers in front of me, but we could provide the detailed breakdown.
1:25 p.m.
Conservative
Ron Liepert Conservative Calgary Signal Hill, AB
I would like the breakdown, because I think it's important that we know, if we're going to be running a deficit of $30 billion, as an example, how many of those unemployed electricians who are no longer working in the oil sands are going to be working in Mr. Sorbara's riding building new condos in Toronto.
1:25 p.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
We have the breakdown by the targeted area, but we don't have results by sector or by geographic region.