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Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
Icgfm Budgeting In Times Of Crisis A Canadian Perspective
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Icgfm Budgeting In Times Of Crisis A Canadian Perspective

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“Budgeting in Times of Crisis: A Canadian Perspective …

“Budgeting in Times of Crisis: A Canadian Perspective
on Stimulus Packages”
Kevin Page, Parliamentary Budget Officer, Parliament of Canada
Mr. Page’s role as Budget Officer is to strengthen the capacity of Parliament to better hold government to account. This is accomplished by increasing transparency in the Government’s fiscal planning framework and improving scrutiny of budgetary estimates. Mr. Page will
cover the Canadian budget process, including the role of the Parliamentary Budget Officer, and address the issues and challenges around the Canadian Stimulus Package.

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  • 1. Budgeting in Highly Uncertain Times: The Canadian Budget Officer’s Perspective ICGFM Conference May 20, 2009 Kevin Page,  Parliamentary Budget Officer
  • 2. Presentation Outline • Background on Canada and the PBO  • PBO Analysis of Canada’s 2009 Budget • Lessons Learned and Longer‐Term  Considerations 2
  • 3. General Background on Canada 3
  • 4. Canada • Economy: $1.6 Trillion (≈$1.4 USD) • Population: 33 million • Geographically‐dispersed country • Relatively decentralized federation 4
  • 5. 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 pursequot;
  • 6. Typical Canadian Budget Cycle 1. Economic and Fiscal Statement o September/October o Sets economic and fiscal stage for public consultations 2. Budget  o February/March o Presents executive’s fiscal plan to Parliament 3. Appropriations Process o Main Estimates (February) + Supplementary Estimates  (in‐year) o Departmental reporting documents: (RPPs; DPRs)
  • 7. General Background on  Canada’s Budget Office 7
  • 8. 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 
  • 9. 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
  • 10. 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
  • 11. 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
  • 12. Context for Canada’s  Stimulus Budget 12
  • 13. 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
  • 14. 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
  • 15. Impacts: Stock market reversal; commodity price  correction (and therefore Canadian dollar depreciation) Commodity Prices & S&P/TSX Composite Index CAN-U.S. Exchange Rate 1975 = 100 1982‐92 = 100 cents U.S. 16000 130 110 120 Bank of Canada Commodity 14000 Price Index (left axis) 100 110 12000 90 100 10000 80 90 CAN‐U.S. exchange rate           (right axis) 70 8000 80 6000 70 60 2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ 2002 ‐ 2003 ‐ 2004 ‐ 2005 ‐ 2006 ‐ 2007 ‐ 2008 ‐ 2009‐ Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Source: Haver Analytics 15
  • 16. Commodity price strength supported Canadians’ purchasing power on the way up… Annual Growth of Real GDP and Real GDI Percent Real GDI* 5 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
  • 17. … 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 Real GDI ‐15 Real GDP History PBO monitoring ‐20 Source: Statistics Canada and PBO calculations and monitoring 17
  • 18. 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
  • 19. Increased uncertainty, declining wealth and income  prospects have shaken confidence Consumer Confidence Business Confidence index, 2002 = 100 index, 2002 = 100 105 105 95 95 85 85 75 75 65 65 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 02 03 04 05 06 07 08 09 04 05 08 09 02 03 06 07 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: The Conference Board of Canada 19
  • 20. 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
  • 21. PBO Federal Budget 2009 Analysis 21
  • 22. 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
  • 23. 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
  • 24. Budget 2009 projected temporary deficits with a return to  surplus by the end of the forecast horizon Budgetary Balance $ billions 10 Budget 2009 status quo 5 +0.2 0 ‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 Source: Budget 2009 24
  • 25. Budget 2009 projected temporary deficits with a return to  surplus by the end of the forecast horizon Budgetary Balance $ billions 10 Budget 2009 status quo 5 +0.2 PBO January 2009 status quo 0 ‐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
  • 26. Budget 2009 projected temporary deficits with a return to  surplus by the end of the forecast horizon Budgetary Balance $ billions 10 Budget 2009 status quo Budget 2009 5 +0.2 PBO January 2009 status quo 0 ‐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
  • 27. 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
  • 28. 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 39.9 31.8 21.9 40 Spending reductions Spending reductions and EI rate increase 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
  • 29. 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
  • 30. 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 EI premiums PIT measures Other Housing Infrastructure Measures for (0.3) (0.6) (1.0) spending (1.4) investment (1.6) low‐income (1.5) (1.7) Source: Budget 2009 Increasing Multipliers *Budget 2009 estimated multipliers shown in parentheses  30
  • 31. Timely: Infrastructure is the largest stimulus component,  but recent track record may raise concerns Infrastructure Canada Planned and Actual Spending $ billions 8 Actual Planned 7 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
  • 32. 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
  • 33. 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
  • 34. …and/or 2) if potential output growth slows thereby  restraining revenues Structural Budget Balance Estimates  $ billions 10 PBO structural balance estimate  8 (2.4% potential growth) 6 PBO structural balance estimate  4 (1.9% potential growth) 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
  • 35. 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 32 Budget 2009 status quo 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
  • 36. 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
  • 37. 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
  • 38. 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
  • 39. 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
  • 40. Revised Outlook and                  Prospects for Recovery 40
  • 41. 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
  • 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 = 100 106 104 102 100 Budget 2009 baseline      real GDP before stimulus 98 96 2008 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2010 ‐ 2010 ‐ 2010 ‐ 2010 ‐ Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Office of the PBO * total stimulus plan (i.e., with leverage)  42
  • 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 Budget 2009 real GDP  2010Q4: 104 +1.9% with stimulus* 102 100 Budget 2009 baseline    real GDP before stimulus 98 96 2008 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2010 ‐ 2010 ‐ 2010 ‐ 2010 ‐ Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Office of the PBO * total stimulus plan (i.e., with leverage)  43
  • 44. 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 Budget 2009 real GDP  2010Q4: 104 +1.9% with stimulus* 102 100 Budget 2009 baseline    real GDP before stimulus 98 2008Q4 actual and   PBO 2009Q1 estimate 96 2008 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2010 ‐ 2010 ‐ 2010 ‐ 2010 ‐ Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Office of the PBO * total stimulus plan (i.e., with leverage)  44
  • 45. 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: 17,325 +189K 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 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2009 ‐ 2010 ‐ 2010 ‐ 2010 ‐ 2010 ‐ Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Office of the PBO * total stimulus plan (i.e., with leverage)  45
  • 46. Longer‐Term Considerations  and Conclusions 46
  • 47. 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
  • 48. 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
  • 49. Longer‐Term Policy Challenges • Population ageing • Climate change • Productivity and structural adjustments • Regional and household income disparities 49
  • 50. 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
  • 51. Contact us Office of the Parliamentary Budget Officer 50 O’Connor Street Ottawa, Canada  K1A 0A9 +1 613 992 8026 tel pbo‐dpb@parl.gc.ca www.parl.gc.ca/pbo‐dpb

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