To assist parliamentarians in their pre-budget deliberations, this report identifies key issues arising from the Government’s Fall Economic Statement.
The economic outlook
Despite the $30 billion (average) annual upward revision to the private sector outlook for nominal GDP over 2017 to 2021, PBO judges that there remains some upside risk to the private sector outlook for nominal GDP over 2020 to 2022. Compared to the Fall Economic Statement, PBO’s projected levels of nominal GDP are, on average, $11 billion (0.4 per cent) higher per year over 2020 to 2022.
The fiscal outlook
PBO is projecting budgetary deficits over 2017-18 to 2022-23 that are $2.2 billion lower, on average, compared to the Fall Economic Statement. This difference is broadly consistent with the Government’s adjustment for risk. However, our outlook for the budgetary balance reflects both higher revenues and higher expenses.
Given the uncertainty surrounding economic and fiscal projections, PBO has often been asked by parliamentarians how its forecast performance compares to Finance Canada.
To provide a high-level assessment of forecast performance, we have calculated average forecast differences for nominal GDP growth and the budgetary balance. On balance, PBO projections are less biased and are as accurate compared to Finance Canada’s survey and budget forecasts.
Presentation of the fiscal plan
The Government continues to improve on the transparency and accessibility of its fiscal plan. That said, the Fall Economic Statement omitted the fiscal sensitivities that have been provided in past statements/updates and budget plans. These sensitivities show the impact on the budgetary balance of various economic shocks (that is, shocks to real GDP growth, GDP inflation and interest rates).
Further, the Fall Economic Statement establishes a fiscal provision of $1.9 billion for “future investments in critical programs and services” over 2020-21 to 2022-23. Parliamentarians may wish to seek further detail on these investments.
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 Fall Economic Statement does not mention these targets, nor does it set a timeline for balancing the budget as per the Government’s commitment. Parliamentarians may wish to seek additional clarity regarding the status of the Government’s fiscal targets and commitments.
The Fall Economic Statement provisions for increases in operating expenses of 0.8 per cent annually, on average, over 2018-19 to 2022-23. However, collective agreements promise annual wage growth in excess of 0.8 per cent. Parliamentarians may wish to seek further detail on the Government’s strategy to manage operating expenses. To better assist parliamentarians, PBO will produce a follow-up report with a more detailed analysis of the Government’s operating expenses and its major cost drivers.