Categories: Capital Read, Inside the Queensway

From the Office of the PBO: Deficits for Dummies

by kadyomalley on Wednesday, January 21, 2009 11:57am - 12 Comments

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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  • The Establishment

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

    If by “fiscal policy objectives” one means, win the next election by distributing billions of dollars of government pork to key ridings and politically connected corporations, then of course there is a firm and over-arching plan.

    Side benefits include fostering an even greater dependency on government largesse and continuing the trend towards weakening and driving out of the country any and all sources of private capital and independent entrepreneurialism. It’s not that we dislike independence and entrepreneurialism as such, but if there is something in the country which doesn’t bow down before the politicians and bureaucrats then what good is it? (to us)

  • madeyoulook

    Page 2, footnote 2: Our review of the underlying forecasts suggests that anticipated fiscal measures (for the few forecasters that have incorporated expected measures) are not significantly impacting their economic outlooks.

    Adding that to your block-quote above (our recession won’t be as awful, and we have a “structural surplus” we really can’t afford to blow), Kady, I feel better and better about screaming “STOP!” from the rooftops before the grandkids’ piggy bank gets stolen.

    Page 9, Box 2: Are we all Keynesians, yet again? Sadly, it seems, yes.

    Main upshot: Government had a plan for gradual debt retirement by 2021. This is in peril because of economic circumstances, mostly beyond Canada’s control. What will the government be doing with these targets? Even without throwing money away by the billions, these targets will certainly need some fine tuning. If Government is to be believed about long-term fiscal health, it will have to pull back substantially its spending in a few years, which will simultaneously balance off the threat to the debt situation and cancel out most of the perceived benefits of the original stimulus. Don’t forget that lower incomes means lower income tax revenues and more unemployment means more EI benefits paid out, the “passive” levers that permit government finances to leave (or push) money back among the citizenry during economic downcycles without even fussing about making things worse.

    OK, I want this PBO team fired from the Library of Parliament offices. I want Page as Finance Minister and his team as the big-shot mandarins in the Finance Department. This is the most sensible review of the situation I’ve read.

    • madeyoulook

      Clarification: Long-term goal was “net total government debt” eliminated by 2021. Which I believe is not as encompassing as I am leading readers to believe above. There would still be debt, and I confess the precise definition of that term would be helpful for a reading of “Deficits for Dummies.” Anyone?

      • onlinereader

        ” the precise definition of that term would be helpful for a reading of “Deficits for Dummies.” Anyone? ”
        ————
        Dec. 18 / 08 Public debt charges expense assumptions 2007 to 2013 is $ 33.3 billion / year or approx . 17 % of entire budget each year flat line while debt pile is growing = federal government is heading into deep deficit over the next five years and will rack up at least $46-billion of new debt – and possibly as much as $105-billion – ?

      • madeyoulook

        Sorry, onlinereader, I do not see in your comment the definition I was hoping for. So I did a little googling:

        Net debt involves a calculation that includes all federal and provincial government debt, minus government assets like the Canada Pension Plan. The federal government’s total debt is approximately $480 billion. (CBC News, November 2006)

        …which strikes me as a bizarre way to calculate a debt position anyways. Book the CPP as an asset without booking the obvious demographic liability for which it was created in the first place?

        Not that any of that will matter if we decide to throw away all common sense next week…

  • Ted

    PBO: “The updated economic outlook based on the PBO survey average results in a
    status quo budgetary deficit reaching $13 billion in 2009-10, equivalent to 0.8% of
    GDP. On a cumulative basis, status quo budget deficits amount to $46 billion over
    2009-10 to 2013-14    .     ”

    So let me see if I got this straight.

    Before spending a dime on infrastructure or any kind of stimulus, before even having any kind of vote in Parliament to help Canadians, the Conservatives have already got a $13 billion deficit and will have a $46 billion deficit.

    And we are to believe Harper when he tells us the budget for 2009 will be only $40 billion in deficit? Do these guys have any clue about what they are doing?

    Timeline refresher:

    September-October, Harper during the election: no deficits, no recession, “This country will not go into recession next year” (Oct 10), “fundamentals of the Canadian economy are good” (Sept 26), “a lot of good buying opportunities” (Oct 7), “even a small deficit would be bad in these difficult economic times” (Flaherty, Oct 8)

    November 27, Harper in the fiscal update: $100 million surplus, no recession, no need for stimulus – cuts and runs from a confidence vote and cancels Parliament instead of bringing any aid to Canadians

    December 4: Harper cancels Parliament without introducing any economic package for Canadians.

    December 15, Harper: “I’m worried about the Canadian economy… Obviously we are going to have to run a deficit”.

    December 16, Harper: “Depression is possible”

    December 18: Four to five years of deficits.

    January, Harper: Deficits in the $30B to $40B range.

    Can these guys be trusted? Do they know what they are doing?

    • seaandthemountains

      Ted,

      agree with your sentiment but you missed some. Don’t have it handy but look at PM statements from Peru. In that period between the election and Nov 27th, both Flaherty and Harper came out on the side of ‘we need deficits’ on more than one occasion.

      i think the answer to both questions is pretty obvious.

      • Shenping

        Absolutely right. If you can read the economic-ese, they are essentially saying that, given current taxation & spending levels, Canada will run a deficit until at least fiscal 2014.

        So, Canada has a Status-Quo deficit of $13 billion but a Structural Surplus of $6 million. Let’s see, that means a projected loss of $19 billion on the sale of government assets. Or it could just mean they’re making this stuff up and hoping nobody notices.

        I think the short version is “We think we’ll have a big deficit, but we don’t know for sure, and we don’t want to admit that it’s our fault.

        • Shenping

          Alternatively, it could mean a permanent increase of taxation or drop in spending of $19 billion dollars, but that doesn’t sound like a stimulus.

    • Dee

      I’m having a problem trying to figure out which planet the Conservatives are living on in order to get the numbers they’re getting.

      Where the heck did all the money go? Where are they spending that $13 billion? Can’t all be going to Afghanistan.

  • Andrew (not Potter or Coyne)

    Go-go-PBO!

    It’s refreshing to have a grown-up voice talking about fiscal policy.

  • Anon

    I believe that this parliamentary site has already had rss feed; just to be a stickler: http://www.parl.gc.ca/common/library_prb.asp?Language=E

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