Evidence of meeting #15 for Government Operations and Estimates in the 43rd Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was pandemic.
A recording is available from Parliament.
January 27th, 2021 / 6:30 p.m.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you, Mr. Chair.
Welcome back, Mr. Giroux.
I'd like to go back to the discussion on the fiscal anchor. I know you might feel that we've beaten this horse to death, but I'd like to make some comments and ask you for some observations, as you said you're not in a position to be able to recommend.
Based on your observations, have any of the OECD countries put out any financial statements during the pandemic that have had a fiscal anchor? If it's yes, what was that fiscal anchor?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I know the European Union has temporarily lifted its Maastricht requirements because of the pandemic, for obvious reasons.
Trevor or Xiaoyi may know more on the international comparisons.
Director, Fiscal Analysis, Office of the Parliamentary Budget Officer
It's a very interesting question.
As you know, Canada is somewhat exceptional in the sense that we don't have a formalized fiscal rule in law at the federal level, whereas lots of European countries and other advanced economies do have these more formalized rules. As Mr. Giroux mentioned, most of them have invoked escape clauses.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
That's great. Thank you.
Mr. Giroux, I'm going to ask you to play a bit of a simulation game with me. Let's agree that the fiscal anchor we're going to use is debt to GDP, and let's say we're going to put out a fall economic statement some time in September. Based on these two indicators, we have a debt one and we have a GDP.
Naturally some of these debts we are incurring might go to GDP, and some might not. Some of the debt we are incurring changes over time because of new measures we are introducing, or the changes to the way we are doing that. Some of this money we are accruing as debt is transfer payments to the provinces, which they may or may not use. It may or may not contribute to the GDP or growth.
Given all these variables, can you give me a sense of how relevant it would be to have a debt-to-GDP fiscal anchor when all these variables are there? If we could run a simulation for one program that we introduce—for example, the wage subsidy or the rent subsidy—what would it look like?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The relevance of having a debt-to-GDP ratio as a fiscal anchor is generally seen as a good way to measure the capacity of a country to support its debt and to service it. It gives not only the absolute size of the debt, but the size of the debt in comparison to the size of the economy. It's imperfect because measurement of the size of the economy is never perfect. Although measuring the size of the debt can be challenging at times too, this is relatively easier to do.
That's why debt-to-GDP is usually perceived as an easy-to-understand and easy-to-track metric. It's also widely used in international comparisons.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
You mentioned that you perceive that our interest rate is going to stay low some time in 2024 and it's not going to change. When we look at the debt, even at the debt we've accumulated or the investment we have made to make sure our economy holds in the $200-billion to $400-billion range, still at that type of interest rate the servicing of that debt seems to be very low.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
You make a good point, so that could be a fiscal anchor in itself. We will ensure that our debt does not exceed a level at which we have to pay more than x per cent of our tax revenues towards interest.
That's why I am saying that if a fiscal anchor is necessary, or is useful at least, the choice of a fiscal anchor is up to the government. Multiple fiscal anchors can be chosen.
To get back to a point you made, if the government spends and incurs additional debt to make the economy more productive, eventually that will reduce the debt-to-GDP ratio, other things being equal, because that will lead to more economic growth, which will reduce the relative size of the debt.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Unfortunately I'm running out of time.
Had we set a target of our forecast debt-to-GDP ratio as we increase or decrease the debt, this number goes up and down and you could only report on a given time, whereas the fiscal anchor is usually used over a longer period of time, rather than a short period of time.
In summary, the relevance of GDP during this time is the question.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
In a time of crisis, when the GDP is going down, the fiscal anchor that's debt to GDP gives very odd results. That's why you have to look at it over more than just one year. It's a good point.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you very much, Mr. Giroux and Mr. Jowhari.
This went a lot quicker and smoother than I thought it was going to go; I thought we'd be a little bit longer. I appreciate everyone's comments and being close to the time.
Mr. Giroux, Ms. Yan and Mr. Shaw, thank you for bearing with us and staying with us during this time frame.
I would also like to thank the technical staff, the clerks and the interpreters for bearing with us and helping this go smoothly.
The witnesses are welcome to leave. I just have a quick FYI for the committee members.
Just so you're aware, in our request for further witnesses for the Nuctech study and for COVID, the public service minister's office has indicated that they've declined an invitation. We had asked for two ministers, so we may have to relook at that. We still haven't heard from the GAC ministry yet. On the COVID study, the Auditor General has responded to us. She does wish to speak with us. However, she feels that the timing is not appropriate to do it quickly on the COVID study, because they have presentations that need to be put out first that they would like to speak to. They are looking at possibly March as being the better option for them to attend.
The clerk, analysts and I will work to make sure that we have witnesses for the next meetings. We'll update you as we go forward.
I want to thank you all for being here today and for bearing with us during this long hour after the vote.
The meeting is adjourned.