Evidence of meeting #48 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was impact.
A video is available from Parliament.
Conservative
Ron Liepert Conservative Calgary Signal Hill, AB
Okay, this certainly doesn't reflect that. I will follow that up at another time.
As we go through this budget year, I am interested in your analysis on revenue. I happen to represent an Alberta riding, and every day somebody new is being let go by a company. Are you seeing the revenue from taxation, both corporate and personal, taking any kind of a hit in this fiscal year, or is it on target?
Trevor Shaw Financial Analyst, Office of the Parliamentary Budget Officer, Library of Parliament
For the current fiscal year, we did see that some of the slowdown in economic growth in Alberta did feed a lower forecast for personal income taxes in the near term. As for this most recent fiscal year, in 2015-16, personal income tax revenues were relatively strong, partly owing to persons moving forward, and recognizing higher-income individuals due to the new 33% tax bracket. On balance, what we're seeing is that personal income taxes over the first few years of our projection are slightly weaker than we had anticipated in our last forecast, but that should rebound over our five-year, medium-term horizon.
Conservative
Ron Liepert Conservative Calgary Signal Hill, AB
Just for clarification, could you be a little more specific? Are you saying that the next few years are going to be below projections but that years four and five will recover?
Financial Analyst, Office of the Parliamentary Budget Officer, Library of Parliament
Yes. Over years three, four, and five, it should recover relative to our last forecast. However, we do see a slightly larger reduction in personal income tax revenues relative to our last forecast in the first two years of our projection.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Good evening, everyone, and welcome.
I have a quick question I haven't been able to reconcile. It seems that the growth numbers that are projected by the PBO are slightly higher than the growth numbers that we have seen from the monetary policy report, by I think it's 0.2 in one year and 0.1. Is there anything the PBO is forecasting that the Bank of Canada is not picking up, or anything you can point to?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
For 2017, the gap between our growth projections is around 0.3 percentage points, and I think you can point to the housing market there. The Bank of Canada has a larger negative contribution to growth in the Canadian economy for that year.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
They are predicting negative 0.3 for 2017 on the housing market. Is the PBO flat on that?
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
I think they have minus 0.2, though I could be wrong. We have a very small positive. For us, the adjustment in the housing market comes in the following year, and after that, it's a more gradual adjustment, but it's a very significant one.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
If I'm understanding this modelling correctly, with our commitment to invest $120 billion in infrastructure over the next 10 years, and looking at this forecast period, the government is still on track, looking at our fiscal anchor, to reduce the debt-to-GDP ratio, incorporating our investment into infrastructure. Is that correct?
Parliamentary Budget Officer, Library of Parliament
Yes, that's correct.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
We've committed as a government to introduce a policy with regard to looking at major infrastructure projects in balancing the needs of the economy and the environment. I'm looking at where WTI and Brent are and the gap versus where Western Canadian Select is. It's around $36 a barrel right now, and Brent and WTI are around $50 and change. I'm curious to know if you have done any modelling to see whether that gap would narrow if we had a project to build a pipeline to tidewater with a new and improved environmental process. Have you done any modelling to see what the implications would be on revenues and tax revenues?
Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer, Library of Parliament
We haven't really modelled that.
Part of that difference has to do with the quality and type of oil you are measuring. It's not all the supply and the pipeline issue. Exactly how the pipelines would affect that difference, we don't really know. We have never looked at what would happen if the gap were to close to zero or to 50% of what it is. No, we have not done that.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
A large portion of that discount is due to the bottleneck in—and the name escapes me for the area—the Midwest of the United States. .
My final comment concerns page 10 in the last paragraph. With budget 2016, we brought in an extra estimate of prudence in the $40-billion adjustment. We've seen the transitory factor of the Fort McMurray wildfires come into effect, but also there are a lot of global uncertainties we're still dealing with, and I don't think they're going to subside at all.
I would slightly disagree with the language describing where we forecast nominal GDP to come in these two years. I would still call it prudence in forecasting. You've used other words, but I would still call it prudence. If you'd like to comment on that, it would be great.
Parliamentary Budget Officer, Library of Parliament
I'll ask Chris. I remember the last time we called him Mr. Prudence, so that's his field.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
It is true that we have revised down our outlook for the level of nominal GDP. However, it hasn't been revised down by as much as that forecast adjustment factor. I think on average we've revised down our outlook by about $15 billion, just to put it in a rough ballpark.
The choice of characterizing it as excessive is relative to historical experience and how we've seen the private sector misses. At least historically speaking, it's very rare that you see both years come in so weak. We can put aside the longer term or the more medium term, but at least one year and two years out, it is very rare, outside of the great recession, to see this happening.
The last point I would comment on is about the use of prudence. The government isn't constrained like households and businesses are. When there are shocks to the economy, the government can absorb them, whereas it's very difficult for businesses and households to do so. That and the current fiscal situation in Canada are other factors you want to take into account in setting these adjustments.
It's also possible to have adjustments made on the opposite side. I'm sure there could be instances when the government might feel that there's some upside risk to the private sector outlook, but that's something we just haven't seen historically. It's always been an adjustment to the downside.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent, QC
It's a real pleasure for me to welcome you, gentlemen. I will make two points before asking questions.
First of all, when I was in a provincial parliament, I asked many, many times to have the privilege in the province of Quebec to have that kind of institution. I think it's very useful. It's non-partisan. We have a clear indication of how things are running for this country. Thank you for the job you are doing. We know it's not very easy. That was the first point.
The second point is that I want to pay my respect to Mr. Fréchette.
Mr. Fréchette, you were the first non-parliamentary Canadian official to greet me at an informal meeting a year ago, when we arrived in the House of Commons. I appreciated your courtesy.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent, QC
Mr. Chair, I want to address two points with Mr. Fréchette.
We have completed the first year of the new government's management. There were many complications regarding the issue of whether the previous government left a large or small surplus.
Can we set the record straight for Canadians on the new government's management? What was the Canadian government's financial position a year ago?
Parliamentary Budget Officer, Library of Parliament
If we exclude all the measures taken in the 2016 budget, we can see that the government ended the 2015-16 fiscal year with a $2.9-billion surplus, instead of a $1-billion deficit as reported.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent, QC
Thank you.
Let's keep that in mind, of course.
Three weeks ago, the Minister of Finance unilaterally decreed—without holding consultations, as we understand it—new rules for mortgage rates. We basically agree that the challenges created by the housing bubble in Toronto and Vancouver need to be addressed. However, the fact remains that the new rules affect all Canadians, whether they live in my community in Quebec City, where housing prices have dropped by 4%, or in Calgary, Alberta, where people are experiencing problems in general with the economy.
Do you think these new rules will affect Canadian economic growth and, as a result, the Canadian government's revenue?
Parliamentary Budget Officer, Library of Parliament
We haven't estimated that yet. It's one of the things we didn't calculate in our update. We'll probably do so in the next update.
