Evidence of meeting #28 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was families.
A recording is available from Parliament.
Conservative
Phil McColeman Conservative Brantford—Brant, ON
Thank you for being here.
I won't take the bait given by the government side today. Usually I do. I don't think you're here to get political, in the sense that you've probably watched us from the outside for long enough to know the routine, so let's get straight to some questions here.
Your numbers would say that the impact of job creation, given the government's projections, is about 40% lower than what the government projects. Is that correct?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Yes. Are you referring to our early April report?
Conservative
Phil McColeman Conservative Brantford—Brant, ON
Yes.
That's a large discrepancy.
I want to talk about the $6-billion contingency. It's called a contingency, but as you look at it and as we try to question deeper and get into the details of this contingency, it's quite interesting. Just let me refer to what you have said in your reports: that it is an excessive number—that's taken from your reports.
We've also heard a lot of criticism from business about the way it's presented in the budget. I have a quote here that I won't go to; I'll just go right to the question. Are you concerned about the way the contingency reserve has been presented?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Thanks for your question.
In our report we noted that there was a deviation from past practices in presenting the contingency reserve, or the “set-aside”, as it was referred to previously. We think in terms of fiscal transparency that it's important to clearly identify the adjustment that's being made, which will allow parliamentarians to see in the bottom-line numbers how much they can either add to or subtract from it.
Conservative
Phil McColeman Conservative Brantford—Brant, ON
Right now it appears, and through questioning of the minister—three times he's been asked whether it is a contingency or just part of the spending plan of the government.... What we are getting back from the minister in repeated answers to that question is that if there are monies available, left over that were for unforeseen...what I call “contingency”.
Unforeseen circumstances happen, such as Fort McMurray, such as other things you can't foresee, and so you create a contingency fund for those things. But at the end of the fiscal year, if that money is not used, that money then goes back to reduce the deficit of that year, if there is a deficit, or if there's a surplus it adds to the surplus, but it's not used for other purposes. That's why it's called a contingency.
My contention has been, and I would like your advice, that if it's not set out as a contingency, as it is today in the budget, it's actually planned spending. What are your views on that? I understand the need for prudence, and that's why you have contingencies, but this looks like planned spending. Is it, then, really a contingency? Can I ask you that question?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Sure.
The way I think about it is that it's an adjustment that's made to revenues that is supposed to take into account the downside risk that the government sees in the private sector economic outlook. That's a very literal interpretation. It's not really a fund that's been set aside as a separate, let's say, bank account, or account that can be drawn from. It's really, I think, the government looking at the private sector outlook and saying, “We think that the balance of risks are to the downside and that really our revenues aren't going to be as high as the private sector outlook would suggest.”
Conservative
Phil McColeman Conservative Brantford—Brant, ON
Okay, as an extension of that, then, if the revenues meet projections or are higher than projections, the money that was in the contingency would sit there and would not be used for regular spending.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
I think this would depend on the timing. Let's say, in your case, if the economy unfolded as the private sector forecasters had indicated, that would mean revenues would be higher than they were noted in the budget. When that would take its course, whether at the end of the year or during the fiscal year, would be difficult to say, but it would at that time indicate a smaller deficit or a larger surplus, depending which side you're on.
Conservative
Phil McColeman Conservative Brantford—Brant, ON
Yes, exactly. It would go one way or the other, but it wouldn't be regular spending, and that's the answer we're getting, that it's regular spending. I just wanted to clarify that with you.
On the small business front, you reported in your reports that not decreasing the taxes, as had been promised by all parties, to the level that small business had suggested, which is the 9% level, would mean a $2-billion loss by small business, which may have been planning on that tax break. Is that a number you stand by?
Economic Analyst, Library of Parliament
The $2.15 billion was actually the cumulative increase in taxes payable over five years. Because the cost of the measure or the increase in revenues to the governments would depend on, I guess, the change from the budget 2015 path for rates—and it happened gradually—the annual cost to small businesses gradually increases, and you can see it in the profile. The annual cost in 2021 would be, we estimate, $815 million.
Liberal
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you, Mr. Chair, and thank you to all the witnesses for coming today. I really appreciate it.
Your mandate is to provide independent financial analysis for private members' bills and any requests by members of Parliament and senators. Following on Mr. Caron's question, how do you prioritize what studies to take on and what studies not to take on?
Parliamentary Budget Officer, Library of Parliament
With difficulty sometimes.
As I mentioned with respect to private members' bills, it's always the materiality of a request. If it's financially important, and there is some important interest for debate, we will look at the topic. Materiality is not necessarily a fixed amount of dollars. If an estimate on the back of an envelope says it's going to be $50 million, it's not something we will look at.
The reason is that we have 16 analysts to be exact and two administrative assistants, so we certainly cannot look at all these requests.
It's the same thing with all the requests we receive from parliamentarians. Last night the question was asked about how many we receive. Increasingly, it's more in the past months. I can tell you that now it's on a regular weekly basis that we receive requests from parliamentarians for various topics to be costed or to have an analysis on them.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you.
Once upon a time, I used to be a financial analyst for a Fortune 500 company. My projections were only as good as my assumptions. As any financial analyst knows, making prudent assumptions are essential to having good forecasts.
In this study you have done for the eight families, how were the eight families determined? With a lot of your assumptions in appendix B, how do you determine exactly what assumptions you're going to use and not going to use?
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
As I mentioned earlier, the families were selected by the member that requested the—
Liberal
Raj Grewal Liberal Brampton East, ON
The formal question is, where's the independence there? The study should be on the impact of the government's Canada child benefit on families across the board.
If an MP, for example like myself, says that he or she wants you to study a specific thing, I think that blurs it, because I would send you families where I know the answer is going to be in my favour and not what's in the best interests of the country, which is probably bad in terms of parliamentarians.
I think the PBO should push back in that instance to say that you will do the study, but you will pick the assumptions, and you will pick the families that you're going to do the analysis on. That would maintain the office's independence, in my opinion.
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
I agree with you in the sense that's why we said in the report that those families are not representative of the population. Those are picked by the member. Those are the results.
We could have expanded the analysis and done other things, but at the time, given many specific resource constraints, we did not expand the question.
You're absolutely right. In the past, we have received requests from members that, in our view, were loaded questions. We either modified the question in sitting with the member and modified the request, or we did not do it.
Yes, you're right. We have to be careful with how we respond to the requests.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you.
My last question is on the contingency. The government ran on a commitment to ensure we were honest with Canadians, that we were accountable and transparent, and that we would give Canadians an update as our fiscal situation changed.
We all know the world economy is quite volatile right now, and we're going to have a period of slow growth going into the remainder of the year.
The $6-billion contingency, in my opinion, is a prudent contingency to ensure that on upside or downside risks.... Across the board, in any industry, contingencies are built into profit and loss statements, into balance sheets, and into income statements because there are certain assumptions you cannot predict. When you're dealing with a $2-trillion economy, a $6-billion contingency seems adequate.
I'd like your comments. I know, Chris, you spoke about this before, but it makes sense to have a contingency, especially when revenues are so contingent on factors like the price of oil and the price of energy. I think that in anybody's opinion, at best you are going to make some decent assumptions, but it's out of your control.
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
As my colleague mentioned earlier, the reason for this prudence factor or contingency or however you call it—it has been called various things—is to try to cover the risk in the economic forecast. That risk has to be based on previous practice, the history of forecasts over many years, to see what the probabilities are of those forecasts and how much risk you want to assume for them. Typically, in any economic forecast, the forecast has to be a balanced risk forecast. The risk has to be the same on the upside and the downside.
In the case of the contingency fund, what happens is that you only cover the downside risk. To the extent that it's not really, from our point of view...when we looked at the previous experience with it, we couldn't find a risk that was that big and that would require that much prudence.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Thank you, Mr. Chair, and thank you to all our witnesses for the work you do for all of us as parliamentarians as well as for Canadians.
I'd like to base most of my comments, Mr. Chair, on the “Fiscal Sustainability Report 2015”. I would imagine you'll be doing an update of it at some point.
I'd like to talk about some of the assumptions in modelling behind this report. First of all, there was a conscious decision to treat all subnational debt as a uniform number. It seems that you've added all the different provinces' and territories' debt and just taken it as a whole. Was that for simplicity of modelling, or was it for some other reason?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
That was really due to the data constraints. The statistical framework we're working in was developed at the IMF. It's called the government finance statistics framework. Currently, Statistics Canada doesn't provide the disaggregated or the provincial estimates for those debt stocks.
