Evidence of meeting #15 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bia.
A recording is available from Parliament.
Liberal
The Chair Liberal Karina Gould
I'm sorry, Mr. Jacques. That concludes that round.
We'll continue with Ms. Cobena for five minutes.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Thank you, Madam Chair.
Mr. Jacques, the Liberal government projects a declining deficit-to-GDP ratio over the next five years as a fiscal anchor. In your report, you estimate that there's only a 7.5% chance that the government can actually do that. I find a 7.5% chance to be extremely low.
Can you explain why there's only a 7.5% chance that this government will respect this fiscal anchor that it has set?
Director, Fiscal Analysis, Office of the Parliamentary Budget Officer
We've used the same kind of methodology that the IMF has used in terms of stress-testing this fiscal anchor specifically. In that, we took into account, as Mr. Jacques said before, the economic shocks that have happened over the past 30 years.
Using those shocks and their impacts on fiscal policy as a result, we determined that there is a 7.5% chance of the deficit-to-GDP declining every single year over that projection horizon. We're really using a similar methodology that the IMF has used in the past to come to this conclusion.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
If there is a 7.5% chance that the government respects its anchors, that in turn means there's a 92.5% chance that it does not respect the fiscal anchor. Can you comment on that?
Director, Fiscal Analysis, Office of the Parliamentary Budget Officer
Using the stress-testing that we've done, you would arrive at that conclusion, but it is a stress test of that fiscal anchor.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Fitch credit rating has already warned, of course, that there is pressure on Canada's credit rating because of the close to $80-billion deficit that was presented in the budget, the persistent fiscal expansion and a rising burden of debt. Fitch goes on to write, “This may be exacerbated by persistent economic underperformance caused by tariff risks and structural [changes], including low productivity.”
Given the challenges related to our fiscal outlook, is this a good time to be introducing more uncertainty and distrust with a vague capital investment definition?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I would say, going back to comments we offered earlier, more transparency is better than less. It is a significant change in the definition of fiscal anchors that the government wants to use. Having more parliamentary debate and more understanding around what that change means is beneficial to everyone.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Thank you.
Mr. Jacques, in a recent interview, you actually commented that the Liberal government ran on the federal debt-to-GDP ratio as a fiscal anchor. There was no debate in Parliament over changing it.
Is this right? What are your thoughts on this? How does a country just change its fiscal anchor? It's a big deal for Canada. That's how we guide ourselves and make decisions. How does the Liberal government change it without proper debate or discussion in Parliament? Could you comment on that?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Sure.
The short answer is that the government has full discretion to identify which fiscal anchors it wants to use as part of its management of the economy and the government's finances.
A recommendation we've made is that there should be heightened transparency around that, especially in situations where you have a long-standing and widely respected fiscal anchor like the declining debt-to-GDP ratio, used in long standing in Canada and widely used across other jurisdictions, and it's no longer being used as a fiscal anchor by the government.
There ends up being risk of potential politicization around the numbers where there end up being material changes to the fiscal anchors or any other aspects of the fiscal framework without policy discussion around that.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Thank you.
The September 2025 fiscal outlook summary warns that the debt-servicing ratio continues to rise over the medium term. At what point would credit rating concerns start pushing Canada's borrowing rates higher in a meaningful way?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a question that's better put to a credit rating agency.
Liberal
The Chair Liberal Karina Gould
Thank you, Ms. Cobena. We're going to have to conclude that round.
We're going to continue with Mr. Leitão for five minutes.
Mr. Leitão, we can't hear you. Are you on mute?
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
I'm sorry. After all these years, you'd think I'd be able to resolve this. That's my fault.
Mr. Jacques, let's go back to the discussion we were having at the beginning. In summary, Canada's financial stability over the medium term is assured. I think we had established that all along. What you mentioned is that we would now have much less flexibility if another shock occurred.
Is that a fair summary?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's right.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Okay, thank you very much.
We've been living with a lot of uncertainty about international trade since January and February 2025. Do you think this is a major shock that the Canadian economy is experiencing?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, I think that fits well with my definition of the word “shock”.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you. I also think it's a shock.
In fact, that's why we see that economic growth in Canada has slowed a lot. So it has all kinds of implications for government revenues, expenditures and so on.
My colleague Mr. Turnbull had also started talking with you about the debt-to-GDP ratio and how unlikely you are to see that ratio decline in this situation.
Given the economic growth forecasts and the revenue growth forecasts that the government has set out in its budget, do you feel that there are significant risks, and therefore that it is possible that we won't be able to meet those targets?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's right.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Okay.
I would say that it's not a question of meeting the debt-to-GDP ratio. It's more about achieving…. Since it's a matter of semantics, I'll stop here.
How do you characterize the economic forecast in the budget? Do you think economic growth forecasts, such as nominal GDP growth forecasts, are conservative or overly enthusiastic?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The economic forecasts used by the Government of Canada are reasonable, because they are based on a survey of 14 economists from across Canada. That gives an aspect of independence to forecasting.
In addition, I must say that the Government of Canada's economic forecasts are aligned with ours. As a result, we're comfortable with their economic forecast.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you very much. We agree on that.
The economic forecast in the budget does not take into account the possibility that the measures taken in the budget will stimulate economic growth. In the budget, the government announced a whole series of measures, whether we like them or not. The deficit is $78 billion. However, the potential benefits of these measures are not included in the economic forecasts. Maybe it will accelerate growth, or maybe it won't. We'll see.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Leitão.
I now give the floor to Mr. Garon for two and a half minutes.