“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.

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