Finance Committee on May 1st, 2017

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Your models are somewhat different from the Department of Finance's. Indeed, in this budget we had our first gender lens looking at the budget. Does your model take into account gender? I know you're looking at the overall macroeconomics, but do you provide any sort of lens in these models that deal with policy, or is it strictly based on the financial or economic modelling of GDP, growth, all of these things, and you don't take into account policy?

I remember when we had discussions previously in which we talked about things like the Canada child benefit, for example, and how some of that led to that consumption pricing. Do your models take this into account, or are they strictly at that high level? Again, using the CCB, you can see where it might have impacts on some of these models. I'm just curious, if you could elaborate on any of—

[Jean-Denis Fréchette]

It's an excellent question. In the GBA analysis, it's not the model itself as much as the analysis. Mostafa mentioned, for example, the labour market. We did include some elements of gender-based analysis in that, because we don't have a choice now; we really have to include that. It's the same thing with the CCB, the Canada child benefit program. That was included in the analysis, and we made some references to younger families, single mothers, and so on. In the analysis we do.

In terms of this kind of purely economic fiscal outlook, it's a little more difficult. We have the same situation with infrastructure. We had questions on infrastructure from a committee in the other place that raised the same issue, and that will probably raise it again this week because we're supposed to appear there to discuss the infrastructure program. They do have the same question. We try to include that in our analysis. It's not always easy.

I don't want to comment on the budget itself, but the budget was not a totally perfectly GBA analysis.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you so much.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Going to five-minute rounds, Mr. Albas, the floor is yours.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

I'm just going to register my concern with the process today. My comments were actually going to be solely on the report, but the moment we start arbitrating and not giving the same level of deference to members' questions as we do to a motion or a bill in the House of Commons, and where you have proactively, without another member of Parliament's raising a point of order about relevance.... To me, we're masters of our own proceedings in this place.

If someone is going a little too far or is being aggressive with a witness, I would expect you, Mr. Chair, or perhaps other members of the committee to call that person out through a point of order. But to dismiss the attempt or desire of another member of Parliament to be able to ask questions on a wide range of issues when we have experts such as these, I think is not a process that is positive for our Parliament. I would just hope that my comments would be taken with some weight simply because they are done with respect.

To the parliamentary budget office, thank you for being here today. I would first like to follow up some of the points I asked in October last year. You may remember that I was asking about the ability of your office to give regional breakdowns by demographics. Obviously one of the concerns we have in this country is our aging demographics and its pull on economic growth, just due to our labour issues and our ability to fund important government programs. Has there been any update? If I am correct, there was a lack of information that would allow that kind of analysis.

Could someone comment, please?

[Chris Matier]

Fortunately, Statistics Canada published earlier last year some more detailed fiscal data sorted by province and territory. We've been taking a close look at that, as well as on the economic side, and developed some methodologies and frameworks we can use to extend our fiscal sustainability reporting to the provincial and territorial level. We'll be able to look at the impacts of the varying demographics across Canada and isolate the potential pressures on spending, revenues, and economic growth.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you.

I do apologize, Mr. Chair, because my question is really regarding the fiscal sustainability report that the parliamentary budget officer does, which is outside of the scope of the motion today. So I do appreciate your latitude, because there is a public interest, I think, in continuing to ask these questions.

The next question is in regard to the Canada child benefit. Obviously provinces have different demographics. They also have different levels of spending programs. In Quebec there is subsidized day care that's widely available. Has there been any modelling to see how the CCB operates by region?

Again, if someone will not be not paying for child care through a private system but will instead be in a publicly subsidized one, there will be a change in behaviour in how those monies are received and used.

[Jean-Denis Fréchette]

Jason.

[Jason Jacques, Director, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

We published a report in September 2016 on precisely this issue with respect to the new Canada child benefit. Within that report there were some additional details, although less so on the regional side, for specific demographic groups and how they would be specifically impacted, especially in terms of after-tax income and disposal income, by the program.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay.

Oh, and I'm sorry, Mr. Chair, it was another report by the parliamentary budget officer—

[The Chair, Liberal, Wayne Easter]

It was on the economy and the fiscal and financial situation, so you can go ahead.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I do appreciate the great latitude you're giving me to have another discussion outside of the topic here today.

In here it talks about net exports having a slight uptick in 2016 and maintaining some growth. Obviously this modelling hasn't taken into account things like softwood lumber. Do you foresee our net exports downgrading as a result? In my area, almost all of the large private employers are mills that sell wood primarily to the United States. There are various different types of wood, from your basic formation to high value-added wood.

Has there been any conversation about what the impacts of the increase in tariffs will be?

[Mostafa Askari]

Not specifically on softwood lumber or a specific trade measure, but what we have done, underlying this projection...because there are always questions now about the impact of the U.S. Obviously there are ideas that the U.S. government will introduce stimulus measures that will boost their growth. So that would have a positive impact on the Canadian economy. If they grow faster, we'll see the benefits of that. Based on the estimates from the IMF and the Bank of Canada, there will be an impact of about 0.5% on U.S. GDP as a result of potential fiscal and stimulus measures to tax cuts and infrastructure spending in the United States.

Now, that would have a positive impact on Canada. About 40% of that will be translated into Canadian growth. At the same time, however, we are seeing all these trade issues that are coming up. There's a possibility that there will be a negative impact from trade measures or the trade discussions on different things like softwood lumber and other sectors. We assume, in our projection, that those possibilities, those changes on trade, will offset the positive growth that will come from the stimulus measures in the U.S. That's a simple assumption that we have made. It covers all these different things. We haven't done it specifically for softwood lumber or any other sector.

[The Chair, Liberal, Wayne Easter]

Thank you to both of you.

Before I turn to Mr. Sorbara, on the question of the United States, your report was tabled on April 28. You do say in the report that there's insufficient information to determine the precise impact of the new U.S. administration's policies on the Canadian economy, and then I think you basically say it will be neutral in its impact.

I listened to President Trump's speech on Saturday night. I've been in Washington a few times. You haven't looked specifically at any of the areas like softwood lumber, dairy, and energy that he's talking about at all, right? I can understand that. That's not a criticism. It wasn't on the agenda six weeks ago, other than softwood lumber.

So you're taking the position in the paper, or basically saying, at least at this stage in your economic viewpoint going forward, that it will be neutral in its impact. What might happen on our side is that we might get a benefit from what happens on their side of the border.

[Mostafa Askari]

Yes, that's correct. There are some positives and some negatives, and we have assumed that the overall impact would be neutral for Canada.

[The Chair, Liberal, Wayne Easter]

I expect that's a road we're going to be going down some more.

Mr. Sorbara, you have five minutes.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair, and welcome to everyone this afternoon. It's great to be back here for the start of the next couple of weeks.

First, I wanted to say a quick thank you. Being economic forecasters, there are a lot of inputs. You put data in and you then get data out. There is a lot of variability in some of those data inputs, which can change week to week. Where we saw a run-up in U. S. yields, there's been a rundown in U.S. yields just as quickly. Where we thought oil prices, based on WTI in U. S. dollars, would go up a little bit, they've come back down, obviously due to supply and demand. What I would argue is that it's a result of supply and demand balances, and not any sort of commodity funds moving the market or anything like that.

I read your forecast in the April 2017 “Economic and Fiscal Outlook” and wonder if you can identify two or three of your biggest risks to the forecast that you've provided us.

[Chris Matier]

In our outlook this time, to take into account the uncertainty around the economic outlook, we have provided a fan chart. Basically, this is a range of possible outcomes that have varying degrees of likelihood. The idea here is to stress that we're moving beyond just looking at one scenario and that there's a probability of other scenarios. Within that fan chart, we think about our risks on the upside and on the downside.

On the upside, we think that our most important risk is that we would have stronger household spending. Currently, we are projecting a pullback in spending by households over the medium term. It has surprised us for awhile that consumer spending has held up quite strongly and that growth has increased. We think that it's possible that, even though household debt levels stay really high, households become less prudent, let's say. That's our upside risk.

On the downside, we think that the most important risk is continued weakness in business investment. When we look in our outlook, we think that the conditions on the financial side and the economic side in terms of confidence, interest rates, and borrowing rates should result in business investment picking up quite strongly. Our downside risk, whether because of increased uncertainty or lack of business confidence, is that we don't get that pickup.

Those are the two main risks that we've identified, but we wanted to stress that there is a lot of uncertainty and that's why we put together these fan charts.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

I do wish to note from your April 2017 “Economic and Fiscal Outlook”, if I can just quote it here, that the “PBO believes that the Government's outlook for the budgetary balance over 2017-18 to 2021-22 is overly prudent.” I welcome those comments from your side and that you've acknowledged on page 2 the investments that we're making in Canadians. In terms of running a moderate deficit, as I would call it, especially on a debt-to-GDP basis or a budgetary-balance basis, we're investing in things like the indexation of the Canada child benefit and higher transfers to governments to fund investments in infrastructure and health care. I know you've commented on higher interest rates, which have somewhat reversed themselves lately and so forth, so I do wish to acknowledge that.

I wanted to get your take on the importance of maintaining a fiscal anchor from a projection basis, this being the debt-to-GDP ratio, which the PBO has forecasted.

[Mostafa Askari]

The government mentioned in budget 2016 that there is an anchor and that the anchor is the debt-to-GDP ratio. The government also mentioned that the budget would eventually be balanced, but no time frame for that was identified.

I think in any kind of planning, having some kind of a general target to achieve would be a good thing to have, as it would provide discipline for whoever is doing the planning. In this case, if we consider the debt-to-GDP ratio as a target of the government, we have identified in our estimates that based on our calculations and our own projection, it's very likely that the government will achieve that target, that debt-to-GDP ratio. By 2021 it will be lower than the current actual debt-to-GDP ratio. But the deficit will remain as far as we are concerned and based on the government's own fiscal projection. By 2021, we'll still have a deficit.

[The Chair, Liberal, Wayne Easter]

Thank you, both. You're a little over time.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

It's a general question. Has the PBO ever felt less confident in making economic projections?

[Mostafa Askari]

I guess people say that forecasting is a humbling business and there are only two kinds of forecasts, those that are either wrong or lucky. There was a question about accuracy, and I think this is always an issue for economic and fiscal forecasters, and any forecaster, in terms of how far you go and whether you're confident or not. We are confident in what we are doing. We have a framework. We have a model and we use the most recent information, and we do our best with our experience and our judgment to do the forecast. The outcome depends on many different things.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

You mentioned earlier—and here I use my own words, not yours—that the finance department was using somewhat outdated numbers to base its projections on and that you are using some different, more up-to-date numbers. I believe I'm right that I just read recently that U.S. first quarter growth was significantly less than the fourth quarter growth.

[Mostafa Askari]

You're correct.