The Parliamentary Budget Officer is flagging several downside risks for the recent federal budget, the biggest being big-ticket campaign promises that have yet to make an appearance in the government’s fiscal forecasts.
In a report issued Friday, the PBO points to several issues for parliamentarians to consider, including a number of areas that could lead to lower revenue or higher spending than foreseen in the budget.
The PBO’s largest concern is expenditures looming outside of the budget, including Liberal campaign pledges and lobbying by the provinces for big increases to health care transfers.
“On the spending side, there could be a significant delta,” PBO Yves Giroux said in an interview.
Some of those election promises were slated to start up in the current fiscal year, most notably a commitment to increase annual payments to seniors receiving the Guaranteed Income Supplement. The Liberal platform said that change would start in fiscal 2022-23, at a cost of $788-million, with a four-year price tag of $4.2-billion. Similarly, the promised Canada Mental Health Transfer was supposed to tally $4.5-billion over five years through to fiscal 2025-26 (including $250-million in fiscal 2021-22).
Those costs do not appear in the budget.
Universal pharmacare could cost billions of dollars a year. The Liberals pulled up short of a commitment to a full-blown program during the campaign, but the agreement struck with the NDP last month says the government will make “continuing progress” toward such a program.
And meeting the premiers’ health care funding demands would cost $28-billion a year immediately, with more increases after that. The budget steered clear of any commitment to meet those demands, however.
The PBO also raises questions on the ability of the government to achieve spending reductions through a broad review, with the budget projecting an average growth of 0.3 per cent for operating and capital expenses over three years. That represents a 90-per-cent drop in the spending growth compared with the period between 2008-09 and 2019-20 (prepandemic), when such expenses rose by an annual average of 3.5 per cent.
And the report also casts a skeptical eye at projections for billions of dollars in new revenue from squeezing tax dodgers. The PBO notes that the Canada Revenue Agency has a below-average record in actually collecting tax arrears. And the budget did not set aside extras funds to deal with increased taxpayer objections and appeals, despite the plan for a more aggressive collection effort.
Taxing questions
Left-leaning Twitter was aglow with excitement over new economic forecasts last week from the International Monetary Fund that show Canada leading the G7 in projected growth in gross domestic product in 2022 and 2023.
That is true, narrowly speaking. The IMF does indeed peg Canada’s GDP growth at 3.9 per cent this year, and 2.8 per cent next year, slightly in front of the United States and Britain this year (each with projected growth of 3.7 per cent) and next year, Germany, with projected growth of 2.7 per cent.
But there’s more to the story. First, the IMF projections are a downgrade of forecasts from January. Canada’s numbers are lower for 2022, along with other countries. More importantly, however, the crowing about Canada’s growth prospects don’t take into account the overall pandemic-rebound picture.
If GDP is indexed to 2019 levels, Canada’s growth through 2023 is less impressive. On that basis, this country ends up in second place within the G7, behind the United States (a ranking that is unchanged from the January projections.)
But why limit the view to the G7? Among all advanced economies, Canada lags the average pace of recovery from 2020 through to 2023, although the gap did narrow a bit in the most recent set of data. Advanced economies, excluding the G7 and euro-area countries, are recovering more quickly than Canada, and that gap grew with the most recent projections.
So, yes, Canada does lead in GDP growth projections for this year and next – but only if the nature of the race and the roster of competitors is carefully circumscribed.
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Barbell benefits: The lowest-income and highest-income households in Ontario are the biggest beneficiaries of public spending, indicates a new report from the Financial Accountability Office of Ontario. Families with annual incomes of up to $27,000 receive an average benefit of $26,561, largely reflecting payments for income support and for social services. Those in the highest income decile, with an annual income greater than $188,013, received average benefits of $34,512, mostly because of having more children and making greater use of child care, education and postsecondary education. However, once taxes and other contributions are included in the analysis, those richer households become net contributors.
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