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Kevin Page on the economic update

The former parliamentary budget officer considers Jim Flaherty’s fiscal statement


 

I think the economic and fiscal projections in the economic update will not be a surprise. The headline (or bottom-line) numbers for economic growth and fiscal balance have not changed significantly. It is a reasonable planning framework and is quite similar to the one presented to Parliament by the Parliamentary Budget Office a few weeks ago.

The underlying economic analysis provided by the Department of Finance provides strong communications support for the government. The Canadian economy did not decline as much as other G8 economies during the 2008-2009 financial crisis and our recovery, while weak, has been better than most. Much of this reflects the fact that we did not have a financial crisis in Canada (like that experienced in the United States and other countries) and our relatively large stimulus package provided much needed support for the private sector in supporting demand.

The Department of Finance continues to use the average private sector forecast to generate its baseline fiscal projections. The numeric average of different forecasts can be argued to provide a sense of confidence that the government is not providing upward bias to its projections that would facilitate hitting its 2015 budget balance targets. It would be nice to know what the view of the Department of Finance is on the economic outlook (and not just the reporting of the numeric average of other economic projections). The adjustment for risk to the nominal GDP outlook is maintained. Given the relative weak recovery in recent years, this is likely a prudent adjustment.

It would be useful if the government provided its analysis of where the economy is operating relative to its potential.

Estimates of the so-called output gap and structural budget balance would give parliamentarians a better sense of the government’s policy stance. Is the government applying an additional freeze to operating budgets to get rid of a structural deficit created in part by significant cuts to taxes before the recession? What is the impact of additional restraint on the economy given that the Canadian economy continues to operate well below its potential some five years after the financial crisis? This analysis is the bedrock to balanced-budget-type legislation in Europe. Will we have balanced budget legislation in Canada devoid of analysis of where the economy is operating relative to the cycle?

PBO analysis suggests if the Finance (private sector) projections turn out as planned, the government will be back to structural surplus by 2015 and will be in a positive long term fiscal gap position (declining net debt relative to GDP in face of aging aging demographics). The government has not been very clear on what it plans to do if it achieves this state. Budgetary revenues and expenditures will be at historic lows relative to GDP. Will it cut taxes further? Will it strive to reduce the debt further?

It is a good thing that the government introduces some analysis on the long-term fiscal sustainability of the country. It would be better if they expanded this analysis to include the provinces and territories and pensions, like the PBO. This is important because when the government makes major decisions like changing the escalator on the Canadian Health Transfer we can see what the impact is on the provincial fiscal position. Similarly, if the government reduces taxes (like the GST) and then argues (incorrectly) that the old age security program is not sustainable we can examine their analysis and policy logic.

Also, and very importantly, it is imperative that the government and public service provide departmental and agency spending plans to Parliament and Canadians. Freezing departmental operating budgets for five years will have a impact on service levels. It may also create future fiscal risk (program integrity issues). There is no accountability without transparency. The lack of medium departmental spending plans linking spending freezes to service levels is undermining Parliament. How is government going to achieve these absolutely incredible efficiency gains? What is the plan? Cabinet ministers and deputy ministers must provide these plans to Parliament.


 

Kevin Page on the economic update

  1. More smoke… more mirrors… more lies… more deceptions… less details… less transparency. That is how they will try to convince people that they are going to do what they know they can’t do. Once it is found out that they can’t do it all they have to do is find someone to blame.

  2. A lot of good questions here. Surely our prudent, responsible,
    accountable, and competent government will answer them, yes ?

  3. After seeing the excellent job Mr. Page had done while he was PBO for a few years, and after seeing the debacle the harper government is trying to shove down our throat over the PMO scandal, I take Mr. Page as a man of honor and integrity over harper any day.

  4. The good news: we no longer have to borrow to keep up the mortgage payments.

    The bad news: we pawned the silverware, the roof is leaking seriously, we had to put the dog down, and everybody in the household has to share the same bathwater…indefinitely.

    Your Economic Action Plan in action.

  5. Kevin Page is not an elected official so who cares what he has to say now?

    • …says the Royal Mistress of the Irrelevant Interrogatory…

    • I do! Many otherscdo as well…

    • So now you have to be elected to make a relevant statement. Who elected all the kids in short pants in the PMO.

    • You seem tired, Francien, these ones are getting pretty obvious.
      No one would blame you if you took a break for a few days — you’ve done yeoman’s work on the whole PMO/Duffy thing after all — but surely even you should take some time out and get back to the bridge once in a while to recharge.

    • I guess your not being elected absolves us all of caring what you have to say?

      Wait, that was never a consideration, soon after you joined and generated a number of consistently inane posts, no one cared what you had to say, regardless of whether you were elected or not.

      And BTW, Page was never elected, he was appointed . . . by Stephen Harper.

  6. //Budgetary revenues and expenditures will be at historic lows relative to GDP. //

    Great new, because the services most Canadians want are delivered by the provinces, and this creates room for the provinces to tax and spend.

    • Except the picture isn’t so rosy on the provincial balance sheets, which are straining to pay for aging population in healthcare. Are you suggesting the feds will increase transfer payments?

      • When the federal government lowers taxes, it makes room for the provinces to increase taxes, and thus revenue. This entire concept that the federal government should be taxing Canadians just to give it to the provinces is insane. Revenue requirements will always be different in any given province, and the provinces need to deal with that, not the federal government. The federal government needs to make it possible for the provinces to set appropriate taxation levels.

        But it’s all politics. The premiers hate that idea, because it means they might have to raise taxes, and that’s bad politics. They’ve always loved the idea of leaving the hard decisions to the federal government, and then they have the added bonus of blaming the federal government when service levels drop.

        • I suppose you are an admirer of Greg Selinger’s government for raising the PST in Manitoba then?

          • No, because he flat out lied about it and continues to lie about it. Less than a year after being elected on a promise not to raise the PST, he went ahead and did it anyway.

            He lied about the reason for it, first saying it was to pay for a flood that didn’t happen. Then he said all $200M raised would go to infrastructure, but not even half of it did. Yet he continues to tell that bald faced lie.

            If he’d said during his campaign that Manitoba has a huge infrastructure deficit, and he’d raise the PST to put the money towards infrastructure, the PST hike would be totally legitimate. Instead he broke the balanced budget law to do something he promised he wouldn’t.

          • A flood that didn’t happen? There are still people from Lake St. Martin living in Winnipeg. Here I found a news source you might believe: http://www.sunnewsnetwork.ca/sunnews/politics/archives/2013/09/20130917-132705.html

            As for half the money going to infrastructure, how can you even know that? The PST increase was implemented in the current fiscal year, has only been collected for one quarter.

            As for the balanced budget law, that was left behind as a poison pill by the deficit ridden Filmon government and has the same status as the federal fixed election date law. I haven’t heard you criticize the federal Conservatives for “breaking the law.”

          • Meanwhile, back at my original point, the feds are balancing their books at the expense of the provinces, that both you and whyshouldIsellyourwheat think should be providing services. So if you don’t want the feds to provide transfer payments and you don’t want the provinces to raise taxes (you seem very unhappy with Manitoba) I guess what you want is cuts to healthcare? Or are consequences someone else’s problem?

  7. Shorter Page: the economy is doing great, but I’m going to be grumpy because I want more numbers from the government.

    Meanwhile normal Canadians are just happy the economy is doing well, and not being dragged through the mud by the likes of Mulcair or Trudeau.

    • …says the Royal Master of the Irrelevant Insult…

    • Great and normal are relative terms, just like your village, it’s all relative.

  8. I believe Mr. Page has the anwers already. I would be very surprised if he did not have a model that considered all these factors/ sensitivities. Tell me Mr.Page are you just looking for confirmation of your assumptions in your model?

  9. All that matters here is what the budget deficit looks like when you EXCLUDE one-time sales of assets from the equation…I am pretty sure our Finance Minister’s statements did not exclude the one-time asset sales.

    • Asset sales are revenues, you include them as revenues when you do a budget. The next year they won’t show up in the budget. If you sold your house, would you not include that money in your budget for housing expenses?!

      Should the federal government also do it’s budget’s without including asset purchases as expenditures?

      • The quotes of deficit being gone should exclude the effects of asset sales by the gov’t…and I do not believe that is what we are getting. Question becomes, are they really out of deficit here, or is that just one-time asset sales making it look that way?

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