Evidence of meeting #37 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was economy.
A video is available from Parliament.
5:45 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Thank you.
Mr. Giroux, can you tell us how much permanent spending is actually in the budget?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a tough question. It's permanent to the extent that we have a five-year horizon. That's usually where the budget horizon ends. It's nothing unusual. In the last year of the horizon, 2025-26, I see $16.7 billion of new spending.
I will rely heavily on Chris and Trevor to correct me, because there are lots of numbers in the budget and lots of pages too. One of your colleagues alluded to the fact that there are 840 pages in French and over 700 pages in English. I glanced at every single one of them. Forgive me I got it wrong, but I think it's $16 billion or $17 billion of spending—
5:45 p.m.
Conservative
5:45 p.m.
Director, Fiscal Analysis, Office of the Parliamentary Budget Officer
I believe in the final year, the total budget actions since the fall statement and budget 2021 were categorized at $16.1 billion.
5:45 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Okay. Thank you.
When you reviewed the numbers, did you detect any commitment to future reasonable deficits in this budget—yes or no?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
You'd have to define “reasonable”. The last year—
5:45 p.m.
Conservative
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
—of the forecast horizon has a deficit of $30 billion, which is higher than 1%. If your definition of reasonable is $30 billion and above, you're fine. If it's way below that, then that gives you an answer.
5:45 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Okay, thank you.
Without a commitment to a reasonable deficit reduction plan, what risk do we run of losing credibility with the international community?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The risk of losing credibility is not immediate because we're in relatively good company in the league of countries that have deficits as far as the eye can see on the horizon, but it doesn't mean it will stay like that for most G7 countries. In the league of international comparison, Canada is the 11th lowest for net debt in 2020 among 29 advanced economies, and it's scheduled to be the 6th lowest, but that's as things stand now. It doesn't mean that future budgets won't have additional spending measures. In fact, in my opinion, that is very likely, so this will change, of course.
5:45 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Right.
Earlier the Governor of the Bank of Canada asserted that he will control inflation. Is it accurate to state conclusively that the Bank of Canada completely controls inflation simply with monetary policy? Aren't there other factors that impact inflation over which he has no control whatsoever?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
You're right. There are other factors. One of them is the reason I am here. It's fiscal policy or budgetary policy, so the more a government spends, the more likely it is to generate inflation, or at least inflation expectations. Last week's budget probably made the governor's job slightly more difficult.
5:45 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Would relatively small pressure from these sorts of outside influences have serious consequences for us, yes or no?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
For small, I would say no. Small pressures would probably not have a big impact.
5:50 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Okay. The Department of Finance's own numbers say we could be back within spitting distance of more historical deficit numbers as early as the next fiscal year with no austerity measures necessary.
What risk does Canada face with taking on this enormous debt, considering the fact that interest rates are on the move and all signs point to rising inflation?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
What the government and the Department of Finance published in the budget is a worst-case scenario. What I would have liked to have seen in the budget was a status quo scenario—that is, what the fiscal track would look like, the budget or the debt would look like, without the budget interventions or the budget investments.
To respond directly to your question, the risks of higher deficits and higher debt with interest rates rising, especially if there were to be new permanent spending in future budgets or in future government decisions, is that the debt-to-GDP ratio, rather than stabilize or even decline a bit, could start to rise. Then it would become a bit more.... Every time you have a debt-to-deficit ratio that is increasing, the longer you wait to stabilize it, the more difficult it is to course-correct. That is the risk.
5:50 p.m.
Liberal
The Chair Liberal Wayne Easter
We'll have to end that there.
We'll go to five minutes split between Ms. Koutrakis and Ms. Dzerowicz.
I'm told by the clerk that we can go a little past six, so we can probably go to Mr. Ste-Marie for one, Mr. Julian for one, Mr. Falk for one and Mr. Fraser for one.
Ms. Koutrakis.
5:50 p.m.
Liberal
Annie Koutrakis Liberal Vimy, QC
Thank you, Mr. Chair.
Thank you, Mr. Giroux, for being with us this afternoon. It's always a pleasure to see you.
We know that economic growth is the best way to deal with rising debt after a crisis.
Do you think the federal government's policy response throughout the pandemic, as well as the measures announced in the 2021 budget, will be effective in generating the economic growth needed to address the pandemic-related debt?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Thank you for the question.
This is a very risky question for me as a non-partisan officer of Parliament. It's difficult for me to answer this question.
My team and I will certainly focus on determining the economic impact of the measures announced in the budget. In particular, we'll be looking at the impact it will have on the economic growth as well as the level of employment.
However, it isn't for me to determine whether or not the measures are appropriate from a public policy perspective. These are eminently political choices. If you ask people of different views, they will have different opinions on how best to generate economic growth. It's a question to which, unfortunately, I can't give a clear and definitive answer.
5:50 p.m.
Liberal
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, you chose a particularly delicate question for me.
5:50 p.m.
Liberal
Annie Koutrakis Liberal Vimy, QC
Thank you for your answer.
The projected deficit for 2021 of $354 billion is approximately $16 billion lower than what was forecast in the fall economic statement. To what do you attribute this improvement?
April 27th, 2021 / 5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's mostly due to better than expected economic activity, what we call “economic development”, so stronger economic activity and a stronger labour market than expected in the fall. That's the gist of the improvement. There are also some lower costs than expected for some COVID-related measures. Off the top of my head, I don't remember exactly which ones came in lower than expected. I think it was the wage subsidy, but I'm not totally sure.
Trevor and Chris can complement that.
5:50 p.m.
Director, Fiscal Analysis, Office of the Parliamentary Budget Officer
Certainly. Yves is absolutely right that a very important part of the reason that Finance Canada's projected deficit is coming in lower in 2020-21, prior to measures, is the story on income taxes. The economy is doing better than they had previously forecast and that leads to higher taxes.
One other aspect on the spending side to take into account is that the government forecast to spend less on its operations, in part because the higher interest rates that were previously forecast mean that anticipated pension and current service costs for pension benefits will be lower, so that, in turn, leads to lower operating expenses. Those are two very important factors for why Finance Canada's estimates have come in with a lower deficit projection for 2020-21 than in the fall economic statement.