To assist parliamentarians in their pre-budget deliberations, this report identifies issues arising from the Government’s Fall Economic Statement.
The presentation of the fiscal plan
PBO previously identified changes to the Government’s presentation of its fiscal plan in Budget 2016 that made it more difficult for parliamentarians to evaluate government policy and scrutinize the fiscal framework.
PBO is pleased to see that the Government has presented the standard fiscal planning tables in its Fall Economic Statement and hopes that they will be maintained in future budgets and updates.
The Government’s risk adjustment
PBO previously judged that the Government’s $40 billion per year risk adjustment to the Budget 2016 private sector forecast of nominal gross domestic product (GDP) in the years 2016 and 2017 was “excessive”.
Revisions to the private sector forecast of nominal GDP and the Government’s risk assessment in the Statement, provide support for PBO’s view that the risk adjustment in 2016 and 2017 was excessive.
Tracking changes to the Government’s fiscal outlook
Relative to Budget 2016, the Government’s overall budgetary outlook is essentially unchanged over 2016-17 to 2020-21. The weaker economic outlook and policy measures are almost entirely offset by the removal of the $6 billion annual risk adjustment to budgetary revenues.
The Statement announces an additional $81.2 billion in federal infrastructure spending over a 12-year period. Relative to Budget 2016, roughly 2 per cent ($1.7 billion) is introduced as new funding within the Government’s fiscal plan to 2021-22.
Comparing economic and fiscal outlooks
The private sector economic outlook for nominal GDP—the single broadest measure of the tax base—presented in the Statement is broadly in line with PBO’s projection over 2016 to 2017 but somewhat weaker over 2018 to 2021.
Projected (status quo) budgetary deficits in 2016-17 and 2017-18 are also broadly similar. However, the weaker private sector economic outlook over 2018 to 2021 and differences in fiscal assumptions result in larger budgetary deficits over 2018-19 to 2021‑22.
Based on PBO’s judgement, there is some downside risk to the Government’s deficit forecast over 2018-19 to 2021-22.
Addressing weaknesses in parliamentary financial accountability
The Government is proposing four changes to better enable Parliament’s scrutiny of the budget and Estimates. The proposal addresses several key recommendations from a 2012 House of Commons Standing Committee examination of Estimates scrutiny.
However, the Government’s proposal falls short of addressing two other challenges: delays in program implementation caused by internal administrative processes and the lack of a fixed budget tabling date.
The Government’s fiscal targets
Despite the commitments made by the Government in Budget 2016 to achieving federal debt-to-GDP and balanced-budget targets, the Statement does not explicitly mention these targets, nor does it set a timeline for balancing the budget.
That said, in his 2 November 2016 testimony on the Statement at the Standing Committee on Finance, the Minister of Finance reiterated the Government’s commitment to reduce the federal debt-to-GDP ratio over the course of its mandate.
Parliamentarians may wish to seek additional clarity regarding the status of the Government’s fiscal targets and commitments.
Update of long-term economic and fiscal projections
Following the Auditor General’s 2012 recommendation, Finance Canada published, annually over 2012 to 2014, long-term economic and fiscal projections for the federal government.
Given the Government’s policy actions since 2014, parliamentarians may wish to seek updated long-term economic and fiscal projections from Finance Canada