Finance Committee on April 18th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 83 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, November 21, 2022, the committee is meeting to discuss the economic and fiscal outlook, and the report of the Bank of Canada on monetary policy.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike. Please mute yourself when you are not speaking.

For interpretation for those on Zoom, you have choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece and select the desired channel.

I'll remind you that all comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

Now I would like to welcome our witness for the first panel, which will be from 11 to about 11:30. With us today from the Office of the Parliamentary Budget Officer is the Parliamentary Budget Officer, Monsieur Yves Giroux.

The floor is yours, Monsieur Giroux, for opening remarks.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Thank you, Mr. Chair.

Good day, members of the committee, and thank you for the invitation to appear before you today.

I am pleased to be here to discuss my office's most recent report, entitled “Economic and Fiscal Outlook”, which my office published on March 2, 2023. Our outlook provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings. Our March outlook incorporated economic data up to and including February 21. Our report was released prior to the tabling of budget 2023 and the recent turbulence in global financial markets.

On April 13, my office published our issues report on budget 2023. The report is designed to assist parliamentarians in their budgetary deliberations, highlighting key issues arising from the budget, which announced $69.7 billion in new spending, measured on a gross basis.

I will now continue my remarks in English.

On balance, the outlook for real GDP growth over 2023 to 2027 presented in budget 2023 is slightly weaker compared to our March outlook, with annual growth averaging 1.6% and 1.7%, respectively. This slight difference reflects a weaker near-term outlook that includes a shallow recession in 2023 in the budget, whereas our March outlook projected the economy to stagnate over the course of the year.

In terms of the fiscal outlook, when put on a comparable basis, our adjusted March projection shows budgetary deficits over 2022-23 to 2027-28 that are, on balance, in line with the outlook presented in budget 2023.

I would now be pleased to respond to any questions you may have regarding our economic and fiscal analysis or other PBO work. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Giroux.

Now we are going to members. I was going to say “for the first round”, but this will be the only round. Each party will have up to six minutes to ask questions. We are starting with the Conservatives for six minutes.

I have MP Morantz, please.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

It's very nice to see you again, Mr. Giroux. It's a pleasure to have you here at our committee to discuss budget 2023.

I read your report with interest. The first thing I want to ask you about is this phenomenon of non-announced measures. It's a concern that's come up before. It came up in the fall economic statement, and even before that. You highlighted in your report that you identified $798 million in new non-announced measures, bringing the total, I think you said, in excess of $12 billion.

For those who might be watching who don't know what non-announced measures are, the government is essentially asking us to vote to allow spending when we don't know at all what it's for. Essentially, it's giving the government a literal blank cheque of $12 billion.

I think you said in your testimony before that the difficulty you have with this is that it's very difficult from an accounting perspective to understand, once the money is spent, what it was actually spent on. There are two problems here. First, there's a major transparency problem when parliamentarians are asked to approve monies and they don't know what they're for. Second, there's a major accountability problem, because after the fact, it's impossible to find out what the money was spent on.

I'm wondering if you could comment on that issue.

[Yves Giroux]

Sure. It's not unusual for governments to have provisions for pressures that could materialize or for unforeseen events. What makes this one particularly challenging is that there are positives and negatives. This suggests the level of detail is quite high. There's clearly planned spending the government has a clear idea on and decisions that are either made or almost made, and for which the quantums are quite clear.

It's presented as an aggregate, so we don't have any clear idea, obviously, of what's included. The concern we have is that when the spending gets announced publicly, it's very difficult to trace it back to the source of funds. Was it budget 2023? Was it budget 2022? It's very difficult to figure out what the source of funds was, and if it's new funding, when it finally gets announced.

It's very difficult for us to follow that kind of money. Those are the main concerns we have.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Have you expressed your concerns about this to department officials?

[Yves Giroux]

We've made our concerns known in reports and in discussions with departmental officials, and given that it's in reports—we know they read our reports, some of them very thoroughly—they're well aware of our concerns.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay. As parliamentarians, what do you think we should do about it? Do you think that this requires some sort of legislative mandate to ensure that this kind of thing doesn't happen in the future?

[Yves Giroux]

It's something that, as parliamentarians, you can ask for further details on from the government. When ministers and officials testify, you can certainly ask them to provide you more details, either in writing or when they appear at committees.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

It's funny you should say that, because I did exactly that when the Minister of Finance was here back in November. I asked her if she would table the details of all the non-announced spending with the committee, and she refused to do that. It seems like we've hit a bit of a wall on finding out what all this non-announced spending is for. It makes it very difficult for us as parliamentarians to vote on something when we don't know what the money is for.

I know part of your mandate is also economic analysis. I'm wondering what you think of the budget generally speaking. It has $69.7 billion in new growth spending measures. I saw Derek Holt being interviewed on the weekend by Scotiabank, and he thinks that all of this profligate government spending has resulted in at least a 1% increase in the bank rate, which I'd never heard an economist say before.

I'm wondering if you agree that government deficit spending is stimulatory in nature, is inflationary in nature and has resulted in an increase in the bank rate that's above what it would have been had the government not embarked on such a massive spending spree.

[Yves Giroux]

We did some analyses—not to translate the spending into how much of a rate increase it means, but looking at spending that was non-COVID-related—and we found that in the absence of non-COVID-related spending over the last couple of years, the deficit would have been almost $26 billion lower each year on average and the debt-to-GDP ratio would have been 4.7 percentage points lower in 2027-28 than was projected in the last budget.

As to the part of your question that relates to the inflationary nature of government spending, the Bank of Canada's monetary policy report indicated last week that government spending—and by that they mean not only federal but also provincial spending—overall stimulates aggregate demand, which is wording equivalent to providing inflation or stimulating inflation.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Morantz.

Now we'll go over to the Liberals with MP MacDonald for six minutes, please.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Mr. Chair, and thank you, Mr. Giroux, for being here again today. It's great to see you.

The news release that accompanied your report noted the cancellation of the $9-billion strategic policy review launched in budget 2022, but in my read of budget 2023, I see a section entitled “Refocusing Government Spending”, which carries substantial financial savings of about $15 billion that go even further than the $9 billion proposed. Can you explain how these two programs differ?

[Yves Giroux]

It would be difficult for me to explain how they differ because the strategic policy reviews of budget 2022 did not have that much detail. We inquired with Department of Finance officials as to what had happened with the strategic policy review in budget 2022, which was aimed at providing savings of $9 billion. We asked them if our interpretation that it had been cancelled was correct. They said that yes, it was correct.

You're right that there are additional or new spending restraint measures announced in the budget. There is a refocusing of government spending, notably reducing spending on consulting, professional services and travel, as well as reducing eligible spending by government departments and agencies and in Crown corporations. Together, this totals about $15 billion over a number of years.

There is the cancellation of the strategic policy review, but also new spending reviews, for a total of $15 billion in the budget.

[Heath MacDonald, Liberal, Malpeque, PE]

Your report also notes that your projections for Canada's real GDP and unemployment are more optimistic than those laid out in budget 2023. Can you explain what drives this difference and what your opinion is on it?

[Yves Giroux]

Sure.

In our estimate, we factor in faster GDP inflation. I'm looking at the numbers here. We have annual growth that's slightly faster. The government includes or factors in a shallow recession in 2023, whereas we don't see that as the most likely scenario. It's possible that there will be a shallow recession, but we see the most likely outlook or outcome for 2023 as being stagnant growth. The government has a slightly more pessimistic scenario for 2023. That explains the bulk of the difference.

[Heath MacDonald, Liberal, Malpeque, PE]

In comparison internationally to other countries, specifically G7 countries, on key fiscal measures like the net GDP ratio, debt levels and our deficit, where does Canada stand in its position to date coming out of the past two years and basically out of COVID-19?

[Yves Giroux]

When looking at G7 countries, Canada compares very favourably on net debt-to-GDP.

On that note, I've had discussions with somebody from Moody's over the last several days. When I talked about the prospects for Canada and deficits as a proportion of the economy being about 1% to 1.5%, they looked at me and said that I should be quite happy because by European standards that's very low.

Compared to G7 countries, we are doing comparably well, in good part because the provinces have near-balanced budgets or small deficits, if you look at an aggregate. We have pre-funded some of our public pension obligations.

Compared to other countries we are doing quite well.

[Heath MacDonald, Liberal, Malpeque, PE]

In regard to Moody's and bond rating, can you just explain to some of the people at home how important it is to maintain our bond rating?

[Yves Giroux]

Sure.

Market participants, investment portfolios and institutional investors look at the bond ratings by external rating agencies to determine the interest rates they're willing to pay for Canadian government bonds. Having a favourable or high rating from a majority of these rating agencies allows Canada to finance its debt on more favourable terms than countries that don't benefit from the same debt rating. It reduces what the governments—the Canadian government and provincial governments—pay in interest.

[Heath MacDonald, Liberal, Malpeque, PE]

We've come through a tumultuous time and we seem to be positioning ourselves on a trajectory that is very good right now for Canada. We don't know what lies ahead to some extent and how complicated it's going to get. You read continually in the media about economists. They have varying opinions on Canada's economy.

If you were speaking to a board of trade in any city in this country, what would you say to them in relation to Canada's economy?

[Yves Giroux]

I would say we have relatively good prospects when it comes to economic growth. We have a diverse economy with a wealth of natural resources. If I were talking to a board of trade, I would express concerns about the productivity level we are seeing in Canada.

Productivity growth is not as good as it could be. Certainly, while talking to a board of trade, I would encourage them to invest aggressively in areas that foster and improve productivity, because that's the key to longer-term economic growth, and we are, unfortunately, lagging compared to the U.S.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP MacDonald.

Now we are on to the Bloc. We have MP Ste-Marie with us.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good day, everyone.

Before we start, I will remind my colleagues that I sent them an email about an invitation yesterday. Mr. MacDonald sent me his answer, but the rest haven't. If they could follow up, I would be grateful.

Hello, Mr. Giroux. I want to thank you once again for being with us, for your participation and for all the work that you and your team are doing. I really liked your analysis in the report entitled, “Budget 2023: Issues for Parliamentarians”.

I will continue along the same lines as Mr. Morantz.

The report reads as follows:

…it is recommended that Parliament consider adopting a new legislative or administrative framework to improve transparency and comprehensibility for parliamentarians and the public. In this case, a fixed budget date earlier in the year could enforce better alignment among the Government's various financial reports.

Could you explain your recommendation in more detail?