Thank you very much, Mr. Chairman.
Committee members, it's nice to be back again.
I thought I could most add value to the committee's hearings by talking about things from a macro perspective and linking the budget to economic growth. I have four points I want to make on that front.
First of all, Canadian growth remains anemic. That's the nicest word I can come up with. Alberta is in a recession, which will probably be a little worse in the near term thanks to the Fort McMurray fires. It may be a bit better towards the back end of the year. Newfoundland is also struggling with a recession. Saskatchewan is growing fairly weakly. There are some pockets of stronger growth. B.C. will probably have growth of around 2.7% this year, and with Ontario, Manitoba, and Nova Scotia, these are the four provinces we list as the strong growth areas. You get a very uneven story across the country.
The single-most depressing variable in our forecast is private investment growth, which we see contracting for the second consecutive year. In fact, our capital base at the end of this year in the private sector may be smaller than it was three years ago. That's a concern for ongoing growth, for productivity, for competitiveness for our economies. I'll come back to that.
Secondly, I think I said in the pre-budget period that some rebalancing of macroeconomic policy was warranted. Most macroeconomists agreed. In fact, the Bank of Canada said that it was probably time for the fiscal authorities to step up a bit because we were effectively pushing on a string. The rebalancing that's gone on in the last six months was generally supported by macroeconomist people in my field.
On the budget itself, our estimate is that the budget will add a bit to growth both this year and next year. We had actually anticipated certain actions in our pre-budget forecast, so we've added 0.2% to growth this year, 0.1% to growth next year. However, the growth effect fades. In fact, it's important to note that you can only stimulate for so long through fiscal deficits, because the effect does fade after two or three years.
Frankly, I'd also like to commend Minister Morneau. The budget is based on really prudent assumptions. I know he's been criticized by some. There are some who think, for example, that the deficit may end up being much smaller than was forecast. Given the uncertainty with things like oil prices, not knowing where inflation is going, I have advised finance ministers for about a decade now to be prudent in their assumptions, and if they're going to surprise people, surprise them on the upside. I actually like prudent assumptions, building a contingency into the budget. If we end up having a deficit which is only half the size, I think that's actually good news. It means we have to borrow half as much on a going-forward basis.
The real issue for me is the long term. I do think that the federal budget has to get reanchored at some point, for fiscal credibility, for credible management. That's certainly the advice I gave to Minister Morneau: I would like to see what your plan is in year three, four, and five for the debt-to-GDP ratio. We don't automatically have to go back to balanced budgets, but I do think that over time you have to be aware what your stock of debt is and how you're managing that, because there is an opportunity cost to running deficits year after year. The federal government will spend about $27 billion this year on interest alone. That's 9% of the federal budget. The more you run deficits, the more debt you'll have built up and the more you're going to squeeze out other programs. That's really the fundamental economic reason for having a long-term plan for your fiscal strategy.
On growth itself, we think 2% is now the new normal for Canada. In fact, 2% growth would be a good year, based on what's happened in the last three or four years. There's no easy path to stronger growth. We think infrastructure investment is a really important element, but it should complement and not be a substitute for private investment. I mentioned earlier that we're troubled by the private investment growth numbers that we're seeing. Infrastructure investment by the public sector can fill in for a while, but it can't fill in forever. It has to build a foundation for stronger private investment growth going forward.
I do think there's scope for rethinking our tax system and for tax reform.
Mr. Chairman, I've noticed your comments in the media about tax reform. I think you and I are on the same page. It probably is time to have a rethink of our tax system to see whether we can do things that will actually strengthen the growth potential of our economy. I'd be happy to talk about that, if you're interested.
Free trade agreements also add a little to our growth potential. It's a small amount, but I do think in our long-term interests we have to find ways to reach out and connect with the rest of the global economy. Of course, things like innovation strategies will be part of the growth plan. Ultimately, we need growth in private investment and also stronger productivity growth, if we're to have stronger economic growth down the road.
I'll offer that as my opening comments.