From the Office of the PBO: Deficits for Dummies


 

As promised, the Parliamentary Budget Office – which now has its very own RSS feed — the very first parliamentary site to do so –  has released its latest pre-budget briefing note for parliamentarians. 

It’s worth reading the whole thing, especially if, like ITQ, you’re still a little bit fuzzy on the difference between a structural and cyclical deficit, but here are a few highlights from the introduction: 

·       Governments across the world are being called on to provide economic stimulus measures to counteract the on-going global recession.  However, it is important to keep in mind that:

·       Relative to many other countries, Canada is expected to experience a milder recession.  As a result of its healthier fiscal position going into the recession, Canada’s status quo budget deficits, relative to the size of its economy, are projected to be much smaller than those in many other industrialized countries.

·       Further, rough estimates indicate that the Government has a structural surplus of about $6 billion — though more work needs to be undertaken in this area.  Thus, any permanent fiscal actions (e.g., permanent tax cuts or permanent spending increases) exceeding $6 billion annually would likely result in structural deficits, limiting the Government’s ability to manage future cost pressures due to, for example, population ageing.

According to the PBO, when we finally get a peek at next week’s numbers, parliamentarians – and, presumably, the rest of us too – should keep the following questions in mind: 

Is there a single, or set of over-arching fiscal policy objectives that the stimulus package will aim to achieve?

As the PBO’s November 2008 EFA report highlighted, and a concern that is even more acute now, the weakened global and Canadian economic outlook poses a significant challenge for the Government to achieve its stated short-term and medium-term fiscal targets. Which of these targets will be re-stated, will some be re-affirmed, or replaced with new policy targets?

Will the Government provide a transparent medium-term fiscal plan that addresses the projected weakness in the economy and supports a meaningful recovery towards the economy’s potential level of activity without limiting the Government’s fiscal capacity to respond to future spending pressures arising from population ageing?


 

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