Icgfm Budgeting In Times Of Crisis A Canadian Perspective
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Budgeting in Highly Uncertain Times: The Canadian Budget Officer’s Perspective ICGFM Conference May 20, 2009
Kevin Page, Parliamentary Budget Officer
Presentation Outline • Background on Canada and the PBO • PBO Analysis of Canada’s 2009 Budget • Lessons Learned and Longer‐Term Considerations
2
General Background on Canada
3
Canada • Economy: $1.6 Trillion (≈$1.4 USD) • Population: 33 million • Geographically‐dispersed country • Relatively decentralized federation
4
Canada’s Federal Government Westminster‐style Parliamentary democracy: • Executive branch: establishes priorities, proposes measures and runs programs • Legislative branch: broad oversight and management of public funds, Parliament’s “power of the purse"
Typical Canadian Budget Cycle 1. Economic and Fiscal Statement o o
September/October Sets economic and fiscal stage for public consultations
2. Budget o o
February/March Presents executive’s fiscal plan to Parliament
3. Appropriations Process o o
Main Estimates (February) + Supplementary Estimates (in‐year) Departmental reporting documents: (RPPs; DPRs)
General Background on Canada’s Budget Office
7
Context for Creating the PBO • Large, recurrent, unplanned budget surpluses • High profile cost over‐runs on major capital projects • Public demand for increased transparency and accountability
Parliamentary Budget Officer (PBO) Created: March 2008 Mandate: Independent analysis to Parliament on: • •
Canadian economy Federal budget issues: • • •
Nation's finances Government estimates Financial costing 9
Some Challenges Facing the PBO • Limited resources to fulfill a broad mandate • Information asymmetry between the Government and Parliament • Providing scrutiny and challenge while being perceived as non‐partisan
PBO’s Operating Principles I.
Independence
Advice must be independent, objective and non‐partisan
II. Open Publishing Model
Fully disclose analysis to Parliamentarians and public
III. Collaboration
External experts peer‐review major reports
IV. Priority‐Setting
Research plan reflects priorities of parliamentarians and committees, focusing on risk and material issues
Context for Canada’s Stimulus Budget
12
Budget Context •
Sept 2008: Major global financial shock amplifies existing weakness in Canadian economy
•
Limited scope for further conventional monetary stimulus puts onus on discretionary fiscal policy
•
Political situation: Nov 2008 economic statement; Dec 2008 prorogation 13
Weakened external environment: Significant downgrading of global economic forecasts IMF 2009 Real GDP Growth Forecasts per cent 4
World*
U.S.
3 2 1 0 ‐1 ‐2 April 2008
November 2008
January 2009
Source: IMF * Based on purchasing‐power‐parity weights
14
Impacts: Stock market reversal; commodity price correction (and therefore Canadian dollar depreciation) Commodity Prices & CAN-U.S. Exchange Rate
S&P/TSX Composite Index 1975 = 100 16000 14000
1982‐92 = 100
cents U.S.
130
110
120 Bank of Canada Commodity Price Index (left axis)
100
110 90
12000 100 10000
80 90
8000
80
6000
70
2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ Jan Jan Jan Jan Jan Jan Jan Jan
CAN‐U.S. exchange rate (right axis) 70
60
2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ Jan Jan Jan Jan Jan Jan Jan Jan
Source: Haver Analytics
15
Commodity price strength supported Canadians’ purchasing power on the way up… Annual Growth of Real GDP and Real GDI Percent 5
Real GDI* Real GDP
4 3 2 1 0 2002
2003
2004
2005
2006
2007
2008
*Note: Real Gross Domestic Income (GDI) = Nominal GDP deflated by the final domestic demand price index Source: Statistics Canada and PBO calculations
16
… suggesting recent commodity price drop will hit Canadians’ purchasing power particularly hard Quarterly Growth of Real GDP and Real GDI Percent 10 5 0 2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
‐5 ‐10 ‐15
Real GDI Real GDP
‐20
History
PBO monitoring
Source: Statistics Canada and PBO calculations and monitoring
17
Employment began falling sharply in November 2008 Quarterly Change in Employment Thousands 200 150 100 50 0 ‐50
2002‐Q1
2003‐Q1
2004‐Q1
2005‐Q1
2006‐Q1
2007‐Q1
2008‐Q1
2009‐Q1
‐100 ‐150 ‐200 ‐250 Source: Statistics Canada’s Labour Force Survey and PBO monitoring
18
Increased uncertainty, declining wealth and income prospects have shaken confidence Consumer Confidence
Business Confidence
Q1 20 09
Q1 20 08
Q1 20 07
Q1 20 06
Q1 20 05
20 02
20 09
Q1 20 08
20 07
20 06
20 05
20 04
20 03
20 02
Q1
65 20 04
65
Q1
75
Q1
75
Q1
85
Q1
85
Q1
95
Q1
95
Q1
105
Q1
105
Q1
index, 2002 = 100
20 03
index, 2002 = 100
Source: The Conference Board of Canada
19
These developments significantly weakened Canada’s economic outlook Canadian 2009 Real GDP Growth Forecasts per cent 3
2
1
0
‐1
Budget 2008
2008 Economic and Fiscal Statement
Budget 2009
Feb 2008
Nov 2008
Jan 2009
Source: Department of Finance Canada
20
PBO Federal Budget 2009 Analysis
21
Budget 2009 – Canada’s Economic Action Plan •
Designed largely as economic stimulus • •
Worth $39.9 billion over 2009‐2010 (2.5% of GDP) Estimated impacts: raise real GDP by 1.9%; create/maintain 189,000 jobs by end of 2010
•
Guiding principles: timely, targeted, and temporary
•
Plan to return to budget surplus in 2013‐14
22
PBO Analysis of Budget 2009 • Fiscal planning assumptions • Measuring the size of the stimulus • Assessing measures relative to principles • Clarifying the current fiscal targets • Monitoring budget implementation
23
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
Budget 2009 status quo
+0.2
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009
24
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
+0.2
Budget 2009 status quo PBO January 2009 status quo
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
25
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
+0.2
Budget 2009 status quo PBO January 2009 status quo
Budget 2009
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
26
Despite similar nominal GDP outlooks, Budget 2009 had much higher revenues than PBO in the outer years Status Quo Revenue Comparison (Budget 2009 minus PBO) $ billions 12 Total revenues 10 8 6 4 2 0 ‐2 ‐4 ‐6 ‐8 ‐10 2008‐09 2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
27
Budget 2009 estimate of the size of the federal stimulus may be overstated Estimates of Federal Fiscal Stimulus 2009‐10 to 2010‐11 $ billions 50 40
39.9
31.8
21.9
Spending reductions and EI rate increase
Spending reductions and EI rate increase
30
Contingent on other govt spending
20 10 0 Budget 2009 'Gross'
'Net' Stimulus
'Net' excl. contingent
Source: Budget 2009, Office of the PBO
28
Stimulus – Budget 2009 Guiding Principles Targeted
“To Canadian businesses and families most in need to trigger largest increase in Canadian jobs and output”
Timely
“Begin within the next 120 days”
Temporary
“Should be phased out when economy recovers to avoid long‐term structural deficits” 29
Targeted: Based on Government estimates, federal measures appear targeted to increase output Federal Measures (2009 to 2010) by Multiplier Impact $ billions 14 12 10 8 6 4 2 0 CIT measures (0.3)
EI premiums (0.6)
PIT measures (1.0)
Other spending (1.4)
Source: Budget 2009 *Budget 2009 estimated multipliers shown in parentheses
Housing investment (1.5)
Infrastructure (1.6)
Measures for low‐income (1.7)
Increasing Multipliers
30
Timely: Infrastructure is the largest stimulus component, but recent track record may raise concerns Infrastructure Canada Planned and Actual Spending $ billions 8 7
Actual
Planned
6 5 4 3 2 1 0 2006‐07
2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
Source: Public Accounts of Canada and Infrastructure Canada’s 2009‐10 Report on Plans and Priorities
31
Temporary: Measures are planned to be largely temporary with $5 billion in ongoing measures beyond 2010‐11 Fiscal Cost of Budget 2009 Measures $ billions 20
15
Spending measures Revenue measures
10
5
0 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
32
However, structural budget deficits could result if: 1) some temporary measures become permanent… Budget Balance Projections $ billions 10 0 ‐10 ‐20
PBO structural balance estimate Budget 2009 budgetary balance
‐30 ‐40 2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009 and Office of the PBO
33
…and/or 2) if potential output growth slows thereby restraining revenues Structural Budget Balance Estimates $ billions 10
PBO structural balance estimate (2.4% potential growth)
8 6
PBO structural balance estimate (1.9% potential growth)
4 2 0 ‐2 ‐4 ‐6 2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Office of the PBO
34
Budget was unclear on the current status of some previously‐stated fiscal targets Federal Debt‐to‐GDP Ratio and 25% Target by 2011‐12 per cent 35 34
Budget 2009
33
Budget 2009 status quo
32 31 30 29 28 27 26
Budget 2008 objective: 25% by 2011‐12
25 2006‐07
2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009
35
Managing Stimulus Measures Issue: Reconciling political pressures for speed with due diligence and oversight
Considerations
Government has eliminated some controls (e.g. environmental assessment); and Streamlined internal approval processes.
An objective, risk‐based management approach is required 36
Oversight of Budget Stimulus Government is providing quarterly budget reports Before this first report, the PBO suggested key elements to assist Parliamentary oversight and track budget implementation Parliament requires: accurate, timely, and easily understood information on recent economic and fiscal developments and the implementation and effectiveness of budget measures 37
PBO’s Oversight Framework Inputs
Which programs, how much funding allocated?
Processes
What are the key legislative requirements, delivery mechanisms and risks?
Outputs
What results will be achieved through federal efforts?
Outcomes
How will these help Canadians affected by the recession and stimulate the economy? 38
Budget Progress Reports Government’s first report in March 2009 focused on spending authorizations (inputs) • Limited information on: expected outputs; outcomes; implementation benchmarks; or Canadian economy Future reports may allow for real‐time assessment of program implementation and results vs. objectives 39
Revised Outlook and Prospects for Recovery
40
Revised Outlook and Recovery •
As a small open economy and commodity exporter, Canada’s recovery depends crucially on global economic and financial developments •
•
Global and domestic monetary and fiscal policy actions will help
Downgraded economic outlook since Budget 2009 exceeds expected positive incremental fiscal stimulus impacts 41
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104 102 100
Budget 2009 baseline real GDP before stimulus
98 96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
42
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104
2010Q4: +1.9%
Budget 2009 real GDP with stimulus*
102 100
Budget 2009 baseline real GDP before stimulus
98 96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
43
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104
2010Q4: +1.9%
Budget 2009 real GDP with stimulus*
102 100 98
2008Q4 actual and PBO 2009Q1 estimate
Budget 2009 baseline real GDP before stimulus
96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
44
Job losses to‐date more than offset the expected employment impacts from Budget 2009 Budget 2009 Stimulus – Employment Impact thousands
17,500
Budget 2009 employment levels with stimulus*
2010Q4: +189K
17,325 17,150
Budget 2009 employment prior to stimulus
16,975
239,500 net job losses in the first quarter of the year
16,800 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
45
Longer‐Term Considerations and Conclusions
46
Post‐recovery issues Economic •
Will there be longer‐term impacts on Canada’s potential output growth?
Policy Considerations • •
What are the fiscal targets and objectives going forward? What are the fiscal and monetary policy exit strategies? 47
General Lessons and Opportunities from the Crisis 1. Global financial crisis underscores importance of transparency in financial reporting and decision‐making 2. Increased scrutiny provides opportunity to improve budget oversight and reporting to Parliament for Budget 2009 and beyond 3. Manage near‐term expectations, with focus to address long‐term policy challenges and preserve policy credibility 48
Longer‐Term Policy Challenges •
Population ageing
•
Climate change
•
Productivity and structural adjustments
•
Regional and household income disparities
49
PBO Lessons Learned 1. Parliament and other stakeholders have a strong desire for additional economic and fiscal analytical capacity. 2. The PBO’s existence and operating model challenge a well‐established system (similar initial experiences shared by other offices, e.g. CBO) 3. Openness, transparency and independence are crucial for the PBO to operate effectively
50
Contact us Office of the Parliamentary Budget Officer 50 O’Connor Street Ottawa, Canada K1A 0A9 +1 613 992 8026 tel pbo‐[email protected] www.parl.gc.ca/pbo‐dpb
Kevin Page, Parliamentary Budget Officer
Presentation Outline • Background on Canada and the PBO • PBO Analysis of Canada’s 2009 Budget • Lessons Learned and Longer‐Term Considerations
2
General Background on Canada
3
Canada • Economy: $1.6 Trillion (≈$1.4 USD) • Population: 33 million • Geographically‐dispersed country • Relatively decentralized federation
4
Canada’s Federal Government Westminster‐style Parliamentary democracy: • Executive branch: establishes priorities, proposes measures and runs programs • Legislative branch: broad oversight and management of public funds, Parliament’s “power of the purse"
Typical Canadian Budget Cycle 1. Economic and Fiscal Statement o o
September/October Sets economic and fiscal stage for public consultations
2. Budget o o
February/March Presents executive’s fiscal plan to Parliament
3. Appropriations Process o o
Main Estimates (February) + Supplementary Estimates (in‐year) Departmental reporting documents: (RPPs; DPRs)
General Background on Canada’s Budget Office
7
Context for Creating the PBO • Large, recurrent, unplanned budget surpluses • High profile cost over‐runs on major capital projects • Public demand for increased transparency and accountability
Parliamentary Budget Officer (PBO) Created: March 2008 Mandate: Independent analysis to Parliament on: • •
Canadian economy Federal budget issues: • • •
Nation's finances Government estimates Financial costing 9
Some Challenges Facing the PBO • Limited resources to fulfill a broad mandate • Information asymmetry between the Government and Parliament • Providing scrutiny and challenge while being perceived as non‐partisan
PBO’s Operating Principles I.
Independence
Advice must be independent, objective and non‐partisan
II. Open Publishing Model
Fully disclose analysis to Parliamentarians and public
III. Collaboration
External experts peer‐review major reports
IV. Priority‐Setting
Research plan reflects priorities of parliamentarians and committees, focusing on risk and material issues
Context for Canada’s Stimulus Budget
12
Budget Context •
Sept 2008: Major global financial shock amplifies existing weakness in Canadian economy
•
Limited scope for further conventional monetary stimulus puts onus on discretionary fiscal policy
•
Political situation: Nov 2008 economic statement; Dec 2008 prorogation 13
Weakened external environment: Significant downgrading of global economic forecasts IMF 2009 Real GDP Growth Forecasts per cent 4
World*
U.S.
3 2 1 0 ‐1 ‐2 April 2008
November 2008
January 2009
Source: IMF * Based on purchasing‐power‐parity weights
14
Impacts: Stock market reversal; commodity price correction (and therefore Canadian dollar depreciation) Commodity Prices & CAN-U.S. Exchange Rate
S&P/TSX Composite Index 1975 = 100 16000 14000
1982‐92 = 100
cents U.S.
130
110
120 Bank of Canada Commodity Price Index (left axis)
100
110 90
12000 100 10000
80 90
8000
80
6000
70
2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ Jan Jan Jan Jan Jan Jan Jan Jan
CAN‐U.S. exchange rate (right axis) 70
60
2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ Jan Jan Jan Jan Jan Jan Jan Jan
Source: Haver Analytics
15
Commodity price strength supported Canadians’ purchasing power on the way up… Annual Growth of Real GDP and Real GDI Percent 5
Real GDI* Real GDP
4 3 2 1 0 2002
2003
2004
2005
2006
2007
2008
*Note: Real Gross Domestic Income (GDI) = Nominal GDP deflated by the final domestic demand price index Source: Statistics Canada and PBO calculations
16
… suggesting recent commodity price drop will hit Canadians’ purchasing power particularly hard Quarterly Growth of Real GDP and Real GDI Percent 10 5 0 2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
‐5 ‐10 ‐15
Real GDI Real GDP
‐20
History
PBO monitoring
Source: Statistics Canada and PBO calculations and monitoring
17
Employment began falling sharply in November 2008 Quarterly Change in Employment Thousands 200 150 100 50 0 ‐50
2002‐Q1
2003‐Q1
2004‐Q1
2005‐Q1
2006‐Q1
2007‐Q1
2008‐Q1
2009‐Q1
‐100 ‐150 ‐200 ‐250 Source: Statistics Canada’s Labour Force Survey and PBO monitoring
18
Increased uncertainty, declining wealth and income prospects have shaken confidence Consumer Confidence
Business Confidence
Q1 20 09
Q1 20 08
Q1 20 07
Q1 20 06
Q1 20 05
20 02
20 09
Q1 20 08
20 07
20 06
20 05
20 04
20 03
20 02
Q1
65 20 04
65
Q1
75
Q1
75
Q1
85
Q1
85
Q1
95
Q1
95
Q1
105
Q1
105
Q1
index, 2002 = 100
20 03
index, 2002 = 100
Source: The Conference Board of Canada
19
These developments significantly weakened Canada’s economic outlook Canadian 2009 Real GDP Growth Forecasts per cent 3
2
1
0
‐1
Budget 2008
2008 Economic and Fiscal Statement
Budget 2009
Feb 2008
Nov 2008
Jan 2009
Source: Department of Finance Canada
20
PBO Federal Budget 2009 Analysis
21
Budget 2009 – Canada’s Economic Action Plan •
Designed largely as economic stimulus • •
Worth $39.9 billion over 2009‐2010 (2.5% of GDP) Estimated impacts: raise real GDP by 1.9%; create/maintain 189,000 jobs by end of 2010
•
Guiding principles: timely, targeted, and temporary
•
Plan to return to budget surplus in 2013‐14
22
PBO Analysis of Budget 2009 • Fiscal planning assumptions • Measuring the size of the stimulus • Assessing measures relative to principles • Clarifying the current fiscal targets • Monitoring budget implementation
23
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
Budget 2009 status quo
+0.2
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009
24
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
+0.2
Budget 2009 status quo PBO January 2009 status quo
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
25
Budget 2009 projected temporary deficits with a return to surplus by the end of the forecast horizon Budgetary Balance $ billions 10 5 0
+0.2
Budget 2009 status quo PBO January 2009 status quo
Budget 2009
‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
26
Despite similar nominal GDP outlooks, Budget 2009 had much higher revenues than PBO in the outer years Status Quo Revenue Comparison (Budget 2009 minus PBO) $ billions 12 Total revenues 10 8 6 4 2 0 ‐2 ‐4 ‐6 ‐8 ‐10 2008‐09 2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
27
Budget 2009 estimate of the size of the federal stimulus may be overstated Estimates of Federal Fiscal Stimulus 2009‐10 to 2010‐11 $ billions 50 40
39.9
31.8
21.9
Spending reductions and EI rate increase
Spending reductions and EI rate increase
30
Contingent on other govt spending
20 10 0 Budget 2009 'Gross'
'Net' Stimulus
'Net' excl. contingent
Source: Budget 2009, Office of the PBO
28
Stimulus – Budget 2009 Guiding Principles Targeted
“To Canadian businesses and families most in need to trigger largest increase in Canadian jobs and output”
Timely
“Begin within the next 120 days”
Temporary
“Should be phased out when economy recovers to avoid long‐term structural deficits” 29
Targeted: Based on Government estimates, federal measures appear targeted to increase output Federal Measures (2009 to 2010) by Multiplier Impact $ billions 14 12 10 8 6 4 2 0 CIT measures (0.3)
EI premiums (0.6)
PIT measures (1.0)
Other spending (1.4)
Source: Budget 2009 *Budget 2009 estimated multipliers shown in parentheses
Housing investment (1.5)
Infrastructure (1.6)
Measures for low‐income (1.7)
Increasing Multipliers
30
Timely: Infrastructure is the largest stimulus component, but recent track record may raise concerns Infrastructure Canada Planned and Actual Spending $ billions 8 7
Actual
Planned
6 5 4 3 2 1 0 2006‐07
2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
Source: Public Accounts of Canada and Infrastructure Canada’s 2009‐10 Report on Plans and Priorities
31
Temporary: Measures are planned to be largely temporary with $5 billion in ongoing measures beyond 2010‐11 Fiscal Cost of Budget 2009 Measures $ billions 20
15
Spending measures Revenue measures
10
5
0 2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009, Office of the PBO
32
However, structural budget deficits could result if: 1) some temporary measures become permanent… Budget Balance Projections $ billions 10 0 ‐10 ‐20
PBO structural balance estimate Budget 2009 budgetary balance
‐30 ‐40 2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009 and Office of the PBO
33
…and/or 2) if potential output growth slows thereby restraining revenues Structural Budget Balance Estimates $ billions 10
PBO structural balance estimate (2.4% potential growth)
8 6
PBO structural balance estimate (1.9% potential growth)
4 2 0 ‐2 ‐4 ‐6 2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Office of the PBO
34
Budget was unclear on the current status of some previously‐stated fiscal targets Federal Debt‐to‐GDP Ratio and 25% Target by 2011‐12 per cent 35 34
Budget 2009
33
Budget 2009 status quo
32 31 30 29 28 27 26
Budget 2008 objective: 25% by 2011‐12
25 2006‐07
2007‐08
2008‐09
2009‐10
2010‐11
2011‐12
2012‐13
2013‐14
Source: Budget 2009
35
Managing Stimulus Measures Issue: Reconciling political pressures for speed with due diligence and oversight
Considerations
Government has eliminated some controls (e.g. environmental assessment); and Streamlined internal approval processes.
An objective, risk‐based management approach is required 36
Oversight of Budget Stimulus Government is providing quarterly budget reports Before this first report, the PBO suggested key elements to assist Parliamentary oversight and track budget implementation Parliament requires: accurate, timely, and easily understood information on recent economic and fiscal developments and the implementation and effectiveness of budget measures 37
PBO’s Oversight Framework Inputs
Which programs, how much funding allocated?
Processes
What are the key legislative requirements, delivery mechanisms and risks?
Outputs
What results will be achieved through federal efforts?
Outcomes
How will these help Canadians affected by the recession and stimulate the economy? 38
Budget Progress Reports Government’s first report in March 2009 focused on spending authorizations (inputs) • Limited information on: expected outputs; outcomes; implementation benchmarks; or Canadian economy Future reports may allow for real‐time assessment of program implementation and results vs. objectives 39
Revised Outlook and Prospects for Recovery
40
Revised Outlook and Recovery •
As a small open economy and commodity exporter, Canada’s recovery depends crucially on global economic and financial developments •
•
Global and domestic monetary and fiscal policy actions will help
Downgraded economic outlook since Budget 2009 exceeds expected positive incremental fiscal stimulus impacts 41
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104 102 100
Budget 2009 baseline real GDP before stimulus
98 96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
42
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104
2010Q4: +1.9%
Budget 2009 real GDP with stimulus*
102 100
Budget 2009 baseline real GDP before stimulus
98 96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
43
Near‐term weakness in real GDP offsets the expected increase from Budget 2009 stimulus Budget 2009 Stimulus – Real GDP Impact index, Budget 2009 2008Q4 = 100
106 104
2010Q4: +1.9%
Budget 2009 real GDP with stimulus*
102 100 98
2008Q4 actual and PBO 2009Q1 estimate
Budget 2009 baseline real GDP before stimulus
96 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
44
Job losses to‐date more than offset the expected employment impacts from Budget 2009 Budget 2009 Stimulus – Employment Impact thousands
17,500
Budget 2009 employment levels with stimulus*
2010Q4: +189K
17,325 17,150
Budget 2009 employment prior to stimulus
16,975
239,500 net job losses in the first quarter of the year
16,800 2008 ‐ Q4
2009 ‐ Q1
2009 ‐ Q2
2009 ‐ Q3
2009 ‐ Q4
2010 ‐ Q1
2010 ‐ Q2
2010 ‐ Q3
2010 ‐ Q4
Source: Office of the PBO * total stimulus plan (i.e., with leverage)
45
Longer‐Term Considerations and Conclusions
46
Post‐recovery issues Economic •
Will there be longer‐term impacts on Canada’s potential output growth?
Policy Considerations • •
What are the fiscal targets and objectives going forward? What are the fiscal and monetary policy exit strategies? 47
General Lessons and Opportunities from the Crisis 1. Global financial crisis underscores importance of transparency in financial reporting and decision‐making 2. Increased scrutiny provides opportunity to improve budget oversight and reporting to Parliament for Budget 2009 and beyond 3. Manage near‐term expectations, with focus to address long‐term policy challenges and preserve policy credibility 48
Longer‐Term Policy Challenges •
Population ageing
•
Climate change
•
Productivity and structural adjustments
•
Regional and household income disparities
49
PBO Lessons Learned 1. Parliament and other stakeholders have a strong desire for additional economic and fiscal analytical capacity. 2. The PBO’s existence and operating model challenge a well‐established system (similar initial experiences shared by other offices, e.g. CBO) 3. Openness, transparency and independence are crucial for the PBO to operate effectively
50
Contact us Office of the Parliamentary Budget Officer 50 O’Connor Street Ottawa, Canada K1A 0A9 +1 613 992 8026 tel pbo‐[email protected] www.parl.gc.ca/pbo‐dpb
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