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Wednesday, May 20, 2009

Government Budgeting in Uncertain Times

Kevin Page, Parliamentary Budget Officer, Parliament of Canada discussed budgeting in highly uncertain times at the 23rd Annual ICGFM Conference. Kevin Page, Parliamentary Budget Officer, Parliament of Canada discussed budgeting in highly uncertain times at the 23rd Annual ICGFM Conference. Parliamentarians in Canada are somewhat upset because of the unanticipated large surpluses. Canada has also had some high profile cost overruns.

Mr. Page described some of the challenges in the Parliamentary Budget Office. They do not have access to the same information as the executive. And, in the case of a minority government, there tends to be more political partisanship.

The Canadian economy has weakened quickly according to Mr. Page. This includes job losses and reductions in consumer and business confidence. He described his office's analysis of stimulus. There was significant debate about whether Canada needed stimulus or whether any stimulus would be affected. Canada selected a stimulus of 2.5% of GDP. Mr. Page pointed out that many believe that Canada can do more because of a good debt to GDP ratio compared to Canadian trading partners.

The analysis by the Budget Office found that stimulus program will increase deficits significantly. The office believes that the Department of Finance estimates for revenue are overly optimistic. The Office also found that the net effect of the stimulus could be much lower because of reductions in taxes and the expectation that provinces and municipalities will match certain program. The opposition parties in Canada have been using these figures.

Is the Canadian stimulus package targeted and temporary? Mr. Page found that the stimulus package was very much targeted. However, not a lot of the package was oriented to low income people. The Office analyzed the Infrastructure Canada department where 1/3 of planned grants have not been disbursed.

The Office found that the stimulus package is temporary and meets the Government objectives. Mr. Page warned that these measures could become more permanent. Revenue can become constrained through structural deficits. The budget did not address how objectives for the reduction of debt to GDP ratios will be affected.

Mr. Page complimented the government in providing an excellent quarterly report on the stimulus. The Budget Office is tracking Canadian GDP. The government expectation for an increase in GDP has proven incorrect for the first quarter of 2009.

The crisis can enable governments to have more effective planning and targets. The Canadian government has not identified the medium term targets.

Lessons learned in Canada because of the crisis includes:

  • Need for improved transparency and financial reporting. This includes culture change.

  • Opportunity for increased scrutiny and accessibility to economic analysis

  • Manage for long-term results and effects like the aging population and the affects of climate change

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