The National Household Survey: Pig, meet lipstick

By Stephen Gordon - Wednesday, May 8, 2013 at 10:00 AM - 0 Comments

(Sean Kilpatrick/CP)

I wrote a lot about the decision to cancel the mandatory long-form census and replace it with with the voluntary National Household Survey (NHS) in 2010-2011 (see here: [1], [2], [3], [4], [5], [6], [7], [8], [9], [10], [11], [12]), but that was all prologue. The real implications of the new survey are only now being played out with the release of the the numbers –  I can’t bring myself to use the word “data” – collected by the NHS.

Here’s what Statistics Canada has to say about the quality of NHS numbers:

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The recession and recovery: Australia did it better

By Stephen Gordon - Friday, May 3, 2013 at 10:49 AM - 0 Comments

(Seth Perlman/AP Photo)

It is frequently remarked that Canada fared “relatively” well during the economic and financial crisis. And it is also frequently remarked that current and projected short-term Canadian economic growth rates are relatively weak. Both statements are true. But it’s important to make the distinction between the level of economic activity and its growth rate. An economy that is still climbing out of recession has a lot more room to grow than an economy that has already fully recovered.

We’re used to measuring ourselves up against the U.S. economy, and sometimes the other G7 countries, but what about a broader comparison?

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Mark Carney’s legacy, and what it means for his successor

By Stephen Gordon - Wednesday, May 1, 2013 at 12:17 PM - 0 Comments

(Fred Chartrand/CP)

Going into the economic and financial crisis of 2008-09, Mark Carney had several advantages that most other central bankers did not:

• The Bank of Canada had accumulated a not-inconsiderable amount of institutional credibility after almost twenty successful years of inflation targeting.
• Canada’s banking system was highly regulated and more than solid enough to withstand the crisis.
• The housing sector was still in a position to respond to lower interest rates.
• Commodity prices bounced back rapidly a few months after the financial crisis hit.

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Yes, Dean Del Mastro, emission regulations have costs

By Stephen Gordon - Tuesday, April 30, 2013 at 10:32 AM - 0 Comments

This is from last Thursday’s Hansard:

Mr. Dean Del Mastro (Parliamentary Secretary to the Prime Minister and to the Minister of Intergovernmental Affairs, CPC): Mr. Speaker, picking up a bit on where the hon. Minister of Canadian Heritage left off, it is not just that the Canadian public rejected Liberal proposals over the last three campaigns, of course mindful of the Liberals’ woeful record with respect to climate change, but it is something to hear the Liberals continue to retread through ideas that have been rejected and present them once again as though they are new and should be taken up even though Canadians have said something quite different.

Does the member understand that there is a world price for oil, there is a world price for gasoline and that oil companies like the idea of a carbon tax principally because they will get the world price for oil or gasoline regardless, but the carbon tax will then be paid by Canadian consumers and it will completely exempt them? However, if they are actually regulated, they will have to absorb these costs and only receive the world price for oil and gasoline. Oil companies are not charitable organizations. They are an important industry for Canada, but they are not charitable.

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Note to the NDP (and everyone else): the popular tax hikes don’t increase tax revenues

By Stephen Gordon - Wednesday, April 24, 2013 at 12:10 PM - 0 Comments

“Don’t tax you, don’t tax me, tax that fellow behind the tree” – Russell B. Long

Anti-tax populism is a powerful force in politics: the Conservatives owe much of their electoral success to their staunch anti-tax rhetoric. And the lesson of three election victories in a row — and of three consecutive elections in which the Conservatives increased their seat totals — do not appear to have been lost on the opposition parties. While they may sometimes denounce the Conservatives’ signature tax cut — two percentage points off the GST, worth about $12-15 billion a year in revenues — neither of the major opposition parties dares suggest that they would reverse this measure if elected.

Anti-tax sentiment has sunk in deep enough that political parties who would like to get elected on a platform of increasing tax revenues seem to feel they have little choice but to promise to only increase taxes that no one has to pay. Magical thinking might be smart politics, but it’s not very good economics. Here are the two most popular themes:

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Why the Reinhart-Rogoff glitch doesn’t matter for Canada

By Stephen Gordon - Monday, April 22, 2013 at 10:39 AM - 0 Comments

If you’ve heard about Carmen Reinhart and Kenneth Rogoff’s much-cited conclusion that economic growth rates deteriorate once debt-GDP ratios go beyond 90 per cent, you’ll have heard by now that this result appears to have been produced by a coding error (as Econowatch explains here). My initial reaction was the same as that of any other economist who does applied work: an empathetic sinking feeling. This is the sort of mistake that could happen to anyone.

But my second reaction was to shrug. The Reinhart-Rogoff (R-R) result is was most pertinent in the debates about fiscal austerity being conducted in the U.S., the U.K. and Europe, where people are making the case for fiscal contraction before the recession is over. To the extent that there’s a debate about fiscal austerity in Canada, that’s not the one we’re having.

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The economy’s potential may be a little lower than we thought

By Stephen Gordon - Friday, April 19, 2013 at 11:27 AM - 0 Comments

The Bank of Canada’s forecasting model (or rather models — Bank staffers use more than one when putting their projections together) has a built-in stability property: projections for GDP eventually return to potential, that is, a level consistent with no inflationary or disinflationary pressures. That was the case in the projections in the January Monetary Policy Report and again in the April MPR. It means that when short-term growth projections are revised down — as they were in January and in again in April — forecasts for growth rates a year or two out are simultaneously revised up so that the economy still reaches potential in the medium term.

But there was an interesting feature of the April MPR that I haven’t seen anyone mention: one of the Bank’s better-known estimates for capacity output was revised down in April, reflecting historical revisions. Current estimates for potential output for the third quarter of 2012 are 0.25 per cent lower than they were in January. So even though the new set of projections still shows convergence to potential in the medium term, this convergence occurs at a lower potential output trend:

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Jobs and other myths about trade

By Stephen Gordon - Tuesday, April 16, 2013 at 9:00 AM - 0 Comments

Politicians and pundits talk a lot about trade policy, but much of what they say either adds nothing to or subtracts from public understanding about trade. Here are a few talking points that are both popular and wrong:

1) Exports are good. Not true; exports are the costs we pay for engaging in international trade. Diverting domestic productive resources to producing more things for foreigners doesn’t increase our standards of living.

2) Imports are bad. This is point one restated: imports are the benefits from trade. The reason we engage in international trade is to obtain goods and services more cheaply than we can produce them for ourselves.

3) Trade deficits are bad. I went though this at length in this post: noting that a country has a trade deficit (or, more properly, a current account deficit) is the same thing as noting that domestic investment is larger than domestic savings. It’s not obvious why this is necessarily a bad thing.

4) Trade deficits are a sign of a slowing economy. The Canadian trade balance is generally counter-cyclical: falling during expansions and rising during recessions. A trade deficit is standard fare for Canadian expansions, not something to get concerned about.

5) Liberalized trade increases employment. Again, this is point one restated. Liberalized trade may increase the number of workers in certain export-oriented sectors. But the effect on total employment in the economy is zero.

6) Liberalized trade reduces employment. Again, this is point two restated. Liberalized trade may reduce the number of workers in certain sectors vulnerable to foreign competition. But the effect on total employment in the economy is still zero.

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A very Canadian housing slump

By Stephen Gordon - Monday, April 15, 2013 at 1:26 PM - 0 Comments

Data from the housing market out today shows that sales were down 15.3 per cent in March compared to the same period last year. Given the events of the past decade, it is natural to worry about the possibility that Canada is headed for a U.S.-style housing meltdown. But I don’t see how that’s likely to happen. It’s far more probable that we’ll see the kind of housing slump we usually see in Canada: a long grind.

The reasons for thinking so are two-fold. The first is that Canadian mortgage underwriting standards are more conservative than they were in the U.S. Practices such as “liar loans” (where borrowers didn’t have to provide proof that they earned as much as they said they did), no-money-down mortgages or negative amortization (where payments didn’t even cover the interest on the loan) never crossed the border into Canada. To be sure, we weren’t entirely immune from the trend towards looser mortgage loan standards — the introduction of longer amortization periods of 30, 35 and even 40 years may have been followed by other “innovations” if the U.S. housing market hadn’t melted down when it did.

The other, related point is that Canadians simply don’t default on their mortgages the way Americans do. This chart graphs the percentage of mortgages in arrears by 90 days or more (Alberta is broken out for reasons that will become obvious in a minute):

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A message for the NDP: profits are people, too

By Stephen Gordon - Wednesday, April 10, 2013 at 11:46 AM - 0 Comments

The preamble of the NDP’s constitution contains this passage:

The principles of democratic socialism can be defined briefly as:

That the production and distribution of goods and services shall be directed to meeting the social and individual needs of people within a sustainable environment and economy and not to the making of profit; …

This sentiment — usually summarized by the slogans “People before profits” or “People, not profits” — is a ubiquitous theme in politics. But it reflects a fundamental misunderstanding of the role of profits in the modern economy, and the NDP would do well to follow through on the proposal(s) to remove it when the party convenes in Montreal this weekend.

Firstly, profits aren’t sent to another planet once they’re paid out: they stay among the people of Earth. I don’t suppose that revelation surprises anyone — the presumption supposedly is that profits are for the rich.

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The Conservatives don’t mind big government if it’s cheap

By Stephen Gordon - Thursday, April 4, 2013 at 11:37 AM - 0 Comments

Adrian Wyld/CP

If asked, the Conservatives will tell you that they favour a smaller government that intervenes sparingly in the functioning of the market, and it’s been pretty well-established that a medium- and long-term goal of the Conservative government has been to reduce the share of Canadian GDP that is taxed and spent by the federal government. But lower taxes and lower levels of spending are not the same thing as a smaller government.

Here are the highlights (sic) of the “Strengthening the Competitiveness of the Manufacturing Sector” section of  Chapter 3.2 of the budget plan: Continue…

The Dutch disease down under

By Stephen Gordon - Tuesday, April 2, 2013 at 9:00 AM - 0 Comments

The U.S. is a natural point of comparison for the Canadian economy for many obvious reasons. But Australia is an even better point of reference when is comes to certain aspects of our economy, especially in the last decade. Both countries are a major exporters of  natural resources and have undergone significant transformation over the last decade.

The surge in commodity prices increased the terms of trade — the ratio of the price of exported goods to the price of imported goods — in both economies, but the effect in Australia was far stronger than what we saw:

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The anti-trade budget

By Stephen Gordon - Monday, March 25, 2013 at 10:37 AM - 0 Comments

Full credit to the government’s communications strategists: they managed to produce budget-day headlines that said the exact opposite of what was in the budget.

The first thing I read on the morning of budget day was the National Post story about cutting tariffs on hockey gear. There was also a matching A1 story in the Globe and Mail and I walked to the budget lockup in a cheerful mood. Even though the numbers involved were tiny, I couldn’t help but feel encouraged about how the measure was being marketed. Almost without exception, trade liberalisation is presented as a concession to the demands of foreign exporters, but the real gains from trade are those obtained from being able to purchase cheaper imports. These gains can be obtained by reducing tariffs unilaterally – the most famous example is the repeal of the the UK Corn Laws in 1849. There was no drawn-out process of negotiations with corn (wheat) exporters in other countries: the UK government simply eliminated tariffs so that the population could have cheaper food. The morning headlines led me to believe our government was going to implement a unilateral tariff reduction for the simplest and best reason: because it increased consumers’ purchasing power.

I was wrong, of course.  Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates those 37 tariff reductions will be accompanied by 1,290 tariff increases.  By my count, there are 84 GPT countries, but I still haven’t been able to track down a list of which countries will be removed from the GPT (Update: Mike Moffatt informs me 12 of these already have separate agreements with Canada, so that brings it to 72). The budget does name some examples: Korea, China (second-most important source of imports to Canada), Korea (seventh) and Brazil (twelfth), and the GPT countries as a group account for more than 20 per cent of imports. This measure is expected to generate some $300 million in extra revenues, on top of about $5 billion in existing excise duty revenues.

So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves. (Imports from the countries with which the Conservatives have negotiated free trade agreements are dwarfed by those from China alone.) Nor does a pro-trade government offer these justifications for raising tariffs:

“We should not be subsidizing by a preferential tariffs, countries that are no longer in that category of being underdeveloped countries. This includes the BRIC (Brazil, Russia, India, China) countries and they’ve been removed from the list,” [Finance Minister Jim Flaherty] said.

When the government released its budget last Thursday, it highlighted the removal of tariffs on baby clothes and sports equipment, but relatively little mention of changing the preferential tariff regime.

Flaherty said that’s because the decision was ultimately a foreign aid arrangement.

“That’s why the general preferential tariff was created and we’re talking about countries now that are no longer entitled to that kind of assistance from Canadian taxpayers,” he said.

“We’re trying to modernize our tariff arrangement. It’s a preferential tariff. It’s designed for countries that are growing their economies that are relatively weak. That’s not true of China or Brazil or India or Russia, and that’s why we’ve taken them off the list.”

I still can’t get my head around the truly bizarre notion that low tariffs are a subsidy to other countries on the part of Canadian taxpayers, especially since raising tariffs requires Canadian taxpayers to cough up an additional $300 million a year to the government. But if we needed any more evidence that this government is not serious about free trade, here it is. Instead of viewing cheaper imports as a way of increasing consumers’ purchasing power, the Conservative government views them as a problem to be solved.

After seven years in power, the Conservative trade legacy consists of higher tariffs and more obstacles to foreign investment. The Council of Canadians must be thrilled.

The incredible shrinking conservative deficit

By Stephen Gordon - Thursday, March 21, 2013 at 7:23 PM - 0 Comments

The Conservative government’s plan is to eliminate the deficit before the next election in 2015: it wants to campaign on a platform of tax cuts – income-splitting in particular – but it also knows that it can’t credibly do so unless public finances are in balance. This is the third budget in a row that has been crafted to fit this narrative, but it’s getting harder and harder to squeeze into it:

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The conservative agenda in the numbers

By Stephen Gordon - Thursday, March 21, 2013 at 5:00 PM - 0 Comments

The Conservatives’ “starve the beast” strategy of reducing the size of the federal government is one of gradual erosion and not dramatic cuts, so it’s only noticeable if you revisit the process at regular intervals, like time-lapse photography. Here is the history of federal government revenues and expenditures as a share of GDP:

Federal government revenues have been at record low levels — less than 14.5 per cent of GDP — for the last four years, and they are projected to remain there. The strategy for eliminating the deficit is to keep expenditure growth below that of GDP so that its share of GDP declines over time. But this approach is not applied across the board. For example, transfers to persons (elderly benefits, children’s benefits and the like) are politically sensitive, and cuts here could provoke broad-based opposition. So the plan in this budget — and the ones that preceded it — is to limit the growth of these transfers to the rate of growth of GDP. In other words, transfers to persons as a share of GDP is projected to converge to a constant level:

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Budget may aim to close tax loopholes, which isn’t as easy as it seems

By Stephen Gordon - Wednesday, March 20, 2013 at 3:00 PM - 0 Comments

(Sean Kilpatrick/CP)

Finance Minister Jim Flaherty has dropped hints to the effect that the March 21 budget will include efforts to revisit the system of tax expenditures: the deductions, exemptions and credits for various activities, firms and people. Eliminating tax loopholes always sounds like a good idea, but it’s not always obvious what the distinction is between a loophole and an integral part of a well-designed tax system.

The largest single item in the 2012 edition of the Department of Finance’s report on tax expenditures is the basic personal amount deduction: more than $30 billion in foregone tax revenues. There is no way the government will remove this tax deduction, nor should it: public finance theory recommends a deduction covering the minimal income required to sustain a basic existence. Other big-ticket items include the system of RRSPs ($15 billion) and exemption of groceries from the GST ($3.9 billion). You can see why the business of eliminating loopholes is not simply a matter of wiping the slate clean. There are a lot of babies in that bathwater. Continue…

What will be (and what should be) in the federal budget

By Stephen Gordon - Thursday, March 14, 2013 at 12:11 PM - 0 Comments

Economists try to make a clear distinction between making positive statements (what will happen) and normative statements (what should happen). These two concepts are very different, and it’s a good idea to keep this distinction in mind when speculating about the budget on March 21. A few points off the top of my head — I’ll probably come up with more during the next week:

Good ideas that will probably be in the budget:

• Training/education. We’re hearing a lot about the mismatch between the skills that employers are looking for and the skills that job-seekers actually have.  This is is serious problem, and it’s amplified by demographics: there aren’t that many new people entering work force. Happily, this is an area where the Conservatives haven’t actually staked out a strong position, so they may base their proposals on the best advice the public service can provide. Measures should be read with an open mind. Continue…

Why do they call it Dutch ‘disease,’ anyways?

By Stephen Gordon - Tuesday, March 12, 2013 at 6:00 AM - 0 Comments

So Dutch consumers are roughly 10% better off than they would have been, but companies have been able to compete only by paring their profit margins.

“The Dutch disease,” The Economist, November 26, 1977

Talk about burying the lede. That sentence appears at the end of the 10th paragraph of the much-referred-to but rarely read article in The Economist that coined the phrase “Dutch Disease.” In  the normal course of things, a 10 per cent increase in consumers’ purchasing power would be the stuff of banner headlines, but, for some reason, The Economist chose to hide that point deep into the story and qualify it with a caveat about how hard it had become for companies to compete. (The answer to that, by the way, is: “So what if producers are struggling?” What really matters is consumer welfare.)

My take on the Dutch Disease debate can be summed up as follows: Why are we calling it a disease?

The Economist was reporting on the difficulties Dutch manufacturers were having in the wake of the discovery and exploitation of natural gas reserves in the Netherlands in the 1970s. The parallels with the recent Canadian experience are obvious: the surge in the prices of oil and other commodities that began in 2002 has been accompanied by a fall in employment in the Canadian manufacturing sector. (Here I’m going to concentrate on the period 2002-2008; the recession complicates the analysis of the last four years.)

No-one can plausibly deny that the increase in resource prices during 2002-2008 led to a reduction in manufacturing employment. But this shift was part of a labour market adjustment that produced broad-based increases in wages and incomes — and broad-based increases in wages and incomes are good things.

The rest of this post is based on a presentation I gave at a the symposium on Dutch Disease organised by the University of Calgary’s School of Public Policy held in Toronto on March 6-7. (It was there that the University of Alberta’s Andrew Leach drew my attention to that remarkable quote.)

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Our Stockholm Syndrome about supply management

By Stephen Gordon - Tuesday, March 5, 2013 at 9:00 AM - 0 Comments

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

Adam Smith, Wealth of Nations, Book IV, Chapter VII

This point is incredibly obvious to anyone who spends any amount of time thinking about the issue, but you will find almost no trace of it in Canadian public debates about international trade, including the latest over the Comprehensive Economic and Trade Agreement with the European Union. Trade agreements are always about “concessions” in which foreign suppliers are grudgingly given — or, more often, indignantly denied — the right to sell Canadians goods and services at prices lower than what we pay now. Let’s be clear here: lowering the price of consumer goods and services has the exact same effect on household welfare as an increase in incomes. But I defy you to name an elected politician who will list “the ability to buy cheaper stuff” as the most compelling reason to support free trade: more than 200 years since Adam Smith wrote that paragraph, our trade agenda is still written by and for producer interests.

We’re stuck with a system in which producer interests — most notoriously the dairy cartel that operates under the name of “supply management” — hold the rest of us hostage. Dismantling the dairy cartel is an act that would significantly increase consumers’ buying power, but this is a measure that the  Conservatives have all but ruled out under any circumstances, and the NDP has made maintaining the cartel a condition for supporting any sort of trade agreement.

Why would the two major parties (a Liberal Party of Canada under Justin Trudeau will likely join them) stubbornly insist on sticking to a policy that makes consumers worse off at the expense of producers? Because it’s a popular position. It’s one of the marvels of the Canadian electorate. Show Canadians a special interest group that uses its government-granted privileges to fleece consumers, and they’ll embrace it as a “national champion,” a “uniquely Canadian way of life” or some equally vapid catch-phrase.

This is from the Wikipedia entry for Stockholm Syndrome:

Stockholm syndrome, or capture–bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending them.

What we suffer from is the economic policy equivalent. Call it “Canada Syndrome”: a tendency for consumers to identify with the producer interests that are holding them hostage.

Should the recent GDP slump affect the 2013 federal budget?

By Stephen Gordon - Monday, March 4, 2013 at 12:43 PM - 0 Comments

The short answer is: apart from forcing government forecasters to update their near-term projections, it shouldn’t.

One longer answer starts with the national accounts identity:

GDP = Consumption + Investment + Government + Net exports

Changes in GDP can be attributed to changes in these expenditure categories. The charts below break down the contributions to the GDP growth during the past few business cycles. Both charts show the per cent contributions to the total increase or decrease in GDP. Here’s what happened during recessionary periods:

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Want to help the poor? Don’t waste your time with the minimum wage

By Stephen Gordon - Tuesday, February 19, 2013 at 1:08 PM - 0 Comments

Barack Obama has proposed increasing the U.S. minimum wage, and the discussion is spilling over to Canada. There are two things one needs to know about the minimum wage, employment and poverty in Canada:

1. In Canada the link between minimum wage increases and lower employment levels is stronger than in the U.S. The famous Card-Krueger study of events along the Pennsylvania-New Jersey border in 1992 found that an increase in the minimum wage actually led to an increase in employment. Subsequent work has challenged that conclusion, but as far as I can tell, U.S. studies generally find that the link between (small) changes in the minimum wage and changes in employment has been fairly weak.

The Canadian literature on the link between minimum wages and employment looks very different. For one thing, empirical studies that use Canadian data are able to exploit variations in the minimum wage both across time and across provinces (in the U.S., on the other hand, the minimum wage is largely driven by changes at the federal level). Estimates for the effect of minimum wage are generally stronger than those in the U.S., and as Morley Gunderson notes in his 2005 survey of the literature:

While there are substantial differences across the different Canadian studies, the following generalisations emerge:

• The earlier Canadian studies (based on data prior to the 1980s) tended to find adverse employment effects that were in the range of US consensus estimates, and sometimes higher, where a 10% increase in the minimum wage would give rise to a 1-3% reduction in employment.
• Studies based on data to include the 1980s tended to find smaller effects that were at the lower end of the consensus range, and possibly zero, as was often also the case in the US.
• However, some more recent studies using different and more sophisticated methodologies as well as more recent data (e.g., Baker, Benjamin and Stanger 1999, Yeun 2003, Baker 2005, Campolieti, Fang and Gunderson 2005a, b, Campolieti, Gunderson and Riddell, forthcoming) find larger adverse employment effects at the higher end and beyond the consensus range, especially in the longer run. The elasticities typically range from -0.3 to -0.6 for teens (slightly lower for young adults), implying that at 10 percent increase in the minimum wage would lead to a 3 to 6 percent reduction in the employment of teens. The fact that they use different data sets and methodologies suggest that these results are robust.
• Overall it appears that the Canadian studies tend to find adverse employment effects that are at least as large and likely larger than US studies; certainly none find positive employment effects as occasionally occurs in the US.

Using Card-Krueger to support calls for a minimum wage increase in Canada isn’t just cherry-picking: it’s cherry-picking from an entirely different orchard.

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A little context on the decline of manufacturing employment in Canada

By Stephen Gordon - Tuesday, February 12, 2013 at 7:00 AM - 0 Comments

The debate over “Dutch Disease” tends to focus almost entirely on what happened in Canada between the oil price surge in 2002 and the onset of the recession in 2008. Employment in the manufacturing sector fell by more than 300,000 during this period, but this number is almost never put into context.

Firstly, the share of people employed in manufacturing has been on a secular decline in industrialized countries for at least the last forty years:

It’s worth pointing out that this trend was established several decades before Chinese manufactures appeared on world markets.

Here are manufacturing employment levels, scaled so that all countries are equal to 100 in 1971 :

Canada is the only country in these graphs where manufacturing sector employment is still on par with what it was forty years ago in absolute terms. (The bump you see in the Canadian data from, roughly, 1995 to the late 2000s will be the subject of an upcoming post.)

The most important thing to note is that the manufacturing employment cycle has been going on for decades. We’ve seen this before, and we’ll doubtlessly see it again.

Update: Data source is the FRED data base at the St Louis Federal Reserve.

The federal deficit will be less than predicted

By Stephen Gordon - Friday, February 8, 2013 at 1:17 PM - 0 Comments

The last federal budget projected a deficit of $21.1 billion for the fiscal year 2013, an estimate the government revised up to $26 billion in November’s Fiscal Update. But it seems to me as though the actual number is going to come in much lower than that.

Every month, the Department of Finance provides some summary statistics on the flows in and out of the public coffers in the Fiscal Monitor. These data are noisy and have significant seasonal patterns: personal income tax revenues jump in April and expenditures jump in March as managers go on a spend-what’s-left-in-the-budget spree. (They know that the reward for not spending all the money allotted to them in a given year is a budget cut for the next year.) But if you take twelve-month moving sums, you can get get a reasonably good idea of the state of federal finances. In principle, the sum of the twelve months to a given March should be the same as for that fiscal year, though there are always end-of-year adjustments in which certain items are budgeted to the entire year and not to any particular month.

Nonetheless, the monthly numbers are close enough to the fiscal year data to justify keeping track of them:

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What to expect from the federal budget

By Stephen Gordon - Thursday, February 7, 2013 at 1:28 PM - 0 Comments

Minister of Finance Jim Flaherty gestures as he delivers a speech to the Economic Club of Canada Wednesday February 6, 2013 in Ottawa. (Adrian Wyld/CP)

Finance Minister Jim Flaherty told us yesterday not to expect much in the way of important changes in the direction of fiscal policy, and I think we can take him at his word. In budget after budget, the government has been very clear about where it wants to go.

Firstly, they will want to limit growth in transfer payments to persons — things like elderly benefits, Employment Insurance and child benefits — to the rate of growth of GDP. The last three budgets projected that these transfers would converge to around 4 per cent of GDP and then stay there:

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