Finance Committee on Feb. 23rd, 2016

[The Chair, Liberal, Wayne Easter]

It's not a point of order. I think it's a matter of debate.

Go ahead, Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much, Mr. Chair.

Going forward, there is also a set of numbers there that I'd like to get some clarification on. It's on page 5 of 10 and it has to do with the difference between the February 2016 survey and the fall update. The note to which it refers reads:

Figures have been restated due to historical revisions to the Canadian System of National Accounts from Statistics Canada.

Could you let us know in simple language what that means, the -21 and the -23?

[The Chair, Liberal, Wayne Easter]

Ms. Raitt, what paper are you dealing with? Is it yesterday's economic—

[Lisa Raitt, Conservative, Milton, ON]

Yes. It's the backgrounder on the economic update, page 5 of 10. There are two numbers, -21 and -23, under nominal GDP level. They pertain to a note that's at the bottom. There's a little asterisk. I just wanted them to clarify the note.

[Nicholas Leswick]

I understand the question.

The System of National Accounts is an international system so that countries can operate and compare their financial statistics in comparable terms.

There are revisions to the system to ensure the system is properly recording certain revenues and expenses, and likewise economic activity, consistently across countries.

In the most recent revisions, there were some differences, as the member asked for in very simple terms, just in the treatment of cash versus accrual items for certain objects in the System of National Accounts. Where we used to account for them on a cash basis, with this System of National Accounts, it's gradually moving towards more of an accrual-based system, for things such as capital expenses and pension expenses.

[Lisa Raitt, Conservative, Milton, ON]

Okay.

[The Chair, Liberal, Wayne Easter]

Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Earlier when I put my question to the minister I obtained a rather political reply. However I would like to obtain a technical answer on how the department arrives at its decision to lower or increase the reserve fund, and whether it increases or lowers, for planning purposes, the forecasts regarding private sector economic growth.

How is the decision made, and how, since last November's economic update, in the space of three months, did we go from a $20-billion decrease in private sector projections to $40 million today? How was the decision to increase the reserve fund from $1 to $6 billion made? I am not talking about the fact that these amounts are increased or decreased, but about how you specifically arrive at a figure of $6 billion or $40 billion.

[Nicholas Leswick]

Thank you for the question.

When we set the economic and fiscal forecasts, our economic forecast is effectively a straight average of the 15 private sector economists that we survey. We take all their variables across a menu of different economic indicators and just take the straight average, including the nominal GDP level that we talked about.

Using that basic average, we then meet with the private sector economists. The Minister of Finance and I met with private sector economists last week to discuss their views on the Canadian economy and in particular any upside or downside risks facing both the international and global economies. On the basis of that discussion, we test the notion of how much downside risk we should protect the forecast against.

In the most recent discussion, which ultimately manifested itself into the $40-billion downward adjustment in question, I think there were a couple of factors. One is the risk of financial market volatility, the risk in the global economy, with China for instance, oil prices, and the futures curve versus where we're seeing the private sector survey. There's clearly some downside risk to the Canadian economy. That was point number one.

On the second point, when we met with economists in November, when we tabled the November update, we included a $20-billion adjustment for risk. Between the November survey and the February survey, we ate through that $20 billion and actually decreased in level terms by an additional $20 billion, so we would have required a $40-billion adjustment.

In that context, given the risk to the downside, the most recent adjustment, and the fact that we've had to revise the private sector survey over the last three surveys on an average of $40 billion, we judged it appropriate to start to recalibrate the $40-billion nominal GDP adjustment.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have a couple of other questions, but I'm trying to go fast here.

Back in November, the fiscal update actually showed the state of the EI account, which the current update does not show. Do you have quick numbers for us on the current state?

[Nicholas Leswick]

I don't have an update on EI numbers for you. We certainly will have that in the budget on March 22.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I'll leave 30 seconds at the end for a last quick question.

[The Chair, Liberal, Wayne Easter]

I'll give you notice.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Merci.

The biggest change we've seen in Annex B in terms of the revenues is the decrease in personal income tax.

I'd like to know how we can actually predict a $7.6-billion reduction in personal income tax. That doesn't take into account the so-called middle-class tax cut, which is in the other part of the ledger. What's the difference? Have you changed your model?

[Nicholas Leswick]

No, there are no changes in the model. It's nominal GDP and flat-out income, so lower income growth in the hands of Canadians. That lower income translates into lower tax receipts and personal income taxes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Could you give me a rough estimate of the impact of that $40 billion for billing purposes that were reused from the private forecasts on the income tax reduction?

[Nicholas Leswick]

The rough estimate is $6 billion and that would be distributed across a few revenue tax receipt items. Back to your question, it's not particular to personal income tax. It would be spread across personal, corporate, and other tax indicators, but it's $6 billion on budgetary revenues.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

How much time do I have left, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

You have two minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

You have a model you're using, and in that model you have fiscal multipliers, right?

[Nicholas Leswick]

Correct.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

We used to have them available, I remember in previous budgets up to about 2010, and then we didn't see them anymore.

Do you have the list of fiscal multipliers the Department of Finance is using either for its updates or even for the budget, and could you make them available to us?

[Nicholas Leswick]

I don't have the list in front of me.

To take a step back, fiscal multipliers are subject to a degree of subjectivity and model assumptions in how these things ultimately are calculated. There's a great deal of debate, as I'm sure the member is aware, on the value of some of these multipliers on infrastructure versus tax rebates, for instance.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That is why I'm asking for them now, because the most recent ones we have are from 2010, so we're talking about five or six years past.

[Nicholas Leswick]

That's right. The last time we published them was in 2009.

I don't have them today, and I can't commit to their being published in budget 2016, but it's under consideration.