"Balancing the Budget on the Backs of the Poor"

March-18-10

Speaker : Mr. McKay
Time : 12/03/2010 12:35:12
Context : Debate

Hon. John McKay (Scarborough—Guildwood, Lib.): Mr. Speaker, you will have noticed through the Olympics, post-Olympics and probably for many months still to come the multi-million dollar advertising budget the government is spending on its action plan. I am holding in my hand a summary of Canada's Economic Action Alan Year 2 published by the Minister of Finance.

This is supposed to be the plan by which Canada returns to a balanced budget. Unfortunately, there are those who look at the numbers as they are provided by the Minister of Finance and his department and beg to differ with the economic action plan of the Government.

The Parliamentary Budget Officer as late as last month said the government's current fiscal structure is not sustainable over the long term. A budget is both simple and complicated at the same time. It deals with revenues, expenditures and the economy. A fairly educated guess is made on what the expenditures are going to be, what the revenues are going to be and what the economy is going to look like over the period of the budget. Frankly, the further time goes on, the less reliable are the figures.

The Parliamentary Budget Officer is highlighting a very important issue, that the government's current fiscal structure is not sustainable over the long term. In simple language, on the basis of the government's projections for the economy, the revenues and the expenditures, all that is going to be happening is in addition to debt. He states:

“...under the current fiscal structure, the Government's debt relative to GDP is projected to increase on a substantial and sustained basis over the long term.”

Simply put, our debt will grow, it will grow in absolute numbers and it will grow relative to our GDP. He goes on to say:

“To close the fiscal gap, permanent fiscal actions—either through increased taxes”

- something the Minister of Finance and the Prime Minister do not want to talk about -

“or reduced program spending,”

- also what they do not want to talk about -

“or some combination of both—amounting to 1.0 and 1.9 per cent of GDP are required under the baseline and alternative scenarios respectively.”

That means that somehow or another some combination of revenues, increased economic growth and reduced expenditures have to amount to 1% or 2% of GDP. We have an economy of $1.3 trillion, so it is $13 billion through to $26 billion. Somewhere or another, we have to find the numbers in order for these numbers to be realistic.
He says:

“The fiscal action plan required to achieve sustainability does not need to be taken immediately.”

I agree with that.

“Implementing the necessary measures may be delayed until the economy has fully recovered...”

Again, that is essentially buying into the consensus of all of the economists that at this point it is not appropriate to take measures until the economy has actually recovered. It does speak to the long-term sustainability of this economic action plan and he is calling it into question.

Yesterday, the Minister of Finance took the unprecedented step of essentially trash talking the Parliamentary Budget Officer. The Parliamentary Budget Officer, in my experience, is a pretty responsible individual. He has come before the finance committee on quite a number of occasions and laid out the way he saw the numbers.

In his report, which apparently so upset the Minister of Finance, the first point he makes in the first sentence of his report is as follows:

“PBO’s assessment of the Budget 2010 outlook is, however, limited by the lack of detailed information and data pertaining to the Government’s assumptions that underlie the translation of the private sector economic forecast into the fiscal forecast...”

He goes on to say he is not disagreeing with the 20 or so private sector economic forecasts that were made. He basically buys it.

It is very interesting that his first point is that the department, the minister and the Prime Minister withheld information from him in order that he could make what we all need, which is an independent assessment of the statements and the viability that this plan projects. In the first sentence, he is taking issue with the availability of information.

We cannot have it both ways. We cannot say that he is wrong and then also say that we are not going to give him the information to look at. This is not the first time the Parliamentary Budget Officer has complained about the lack of information coming from the Department of Finance and this particular minister.
The report continues:

“PBO believes that the private sector economic outlook, on which Budget 2010 fiscal projections are based, provides a reasonable basis for fiscal planning.”

To my point, he is not disagreeing. He is not disagreeing with the private sector economists. However, he cannot do a full bore analysis on the basis of the information that has been provided by the Minister of Finance.
The report continues:

“PBO disagrees with the overall characterization of the Canadian economic situation and outlook in Budget 2010.”

Essentially, he is saying that the Prime Minister and the Minister of Finance have put expectations on the performance of the economy that are a touch too rosy.

Hon. Wayne Easter (Malpeque, P.E.I. - Lib.): A touch.

Hon. John McKay: Just a touch. As my learned and hon. friend from Malpeque will know, just a 1% error is a $13 billion swing in revenues. At the best of times, when people are all operating in good faith, there can be mistakes made both to the plus and to the minus. He is making the point that he thinks that they are just a little over-optimistic about how the economy will perform, certainly out over the longer term.

The report continues:

“PBO believes that the dispersion of private sector forecasts likely underestimates the actual magnitude of uncertainty surrounding the economic outlook.”

That is economic speak. It really means that he does not think that going out over two, three or four years is anything other than pinning the tail on the donkey.

The report continues:

“PBO believes that the risks to the private sector economic outlook for nominal GDP are roughly balanced but would not characterize this outlook as a ‘prudent’ basis for fiscal planning.”

In other words, he does not think this is prudent. It is possibly not even conservative. Who knows?

Interestingly, if we start to break out his charts where he goes through the first two years, he is actually slightly more optimistic than the government in the first couple of years. After that, the spread between what the Government believes and what the Parliamentary Budget Officer believes gets rather dramatic. There is an enormous gap between what the minister says the plan is and what the Parliamentary Budget Officer says it is.

The report continues:

“PBO’s estimate of the structural deficit does not mean that the Government’s budget will not return to balance.”

He is optimistic that it still could. It continues:

“Rather it suggests that achieving budgetary balance would require: the economy operating significantly above its potential—“

In other words, a lot more than what the rosy projections of the Minister of Finance anticipate. It continues:

“—the economy operating significantly above its potential; actions to increase revenues or reduce spending relative to their projected paths; or, some combination thereof.”

Either the economy has to really cook, or the government has to be serious about its constraints on its expenditures, or it has to utter the T-word. In fact, the government has, without uttering the T-word, actually increased taxes on a number of levels.

It has increased taxes on the income trust and it will impose a punitive 31.5% tax on income trusts by 2010. That of course is accounted for in the revenues and the government is anticipating that that will be in the revenues.

It has also put on a 9% increase in EI premiums, which everyone, including the Minister of Finance, has described as a punitive tax. That amount of 15¢ per $100 is accounted for in the budget and anticipated. Similarly, there is an increase in the traveller's security tax. Again those are revenues that the government anticipates, even in its economic plan, so it is a combination of revenues, expenditures, and the economy and how it will perform.

I would like to think that this is an economic action plan, but it is really a non-plan. What is more disturbing is who is actually going to pay for this non-plan. I would direct the House's attention to page 164 of the budget, which I am sure we have all read by now, possibly even including the Finance Minister. It projects that there is going to be expected savings of $17.5 billion over five years.

What does expected savings actually mean? That is sort of like putting 50 cupcakes on the table and saying what a good boy I am because I only ate 48 of them. These expected savings are really kind of mythical moneys. These are moneys that we might have spent in another situation but we are not going to spend. In order to make the economic action plan work, we have to work in this $17.5 billion of expected savings. The real question is this. Suppose we bought that this two-cupcake approach is in fact a viable approach. Who is actually paying for this?

The first thing we notice is that there is going to be restraint in the growth of national defence spending. They are contributing $2.5 billion to this $17.5 billion of expected savings. That sounds pretty good, $2.5 billion on an annual budget of roughly $20 billion, so over the course of five years, with $100 billion for national defence, they are going to contribute $2.5 billion. Good for them.

The next line is foreign aid. Foreign aid, on the other hand, is going to contribute $4.5 billion to these expected savings, so national defence is going to contribute $2.5 billion, and foreign aid, on the other hand, is going to project $4.5 billion. 
  
In absolute terms, foreign aid is contributing $2 billion more than national defence to these expected savings. In percentage terms, however, it is quite a bit more, because the budget for foreign aid is flat-lined at $5 billion for the next five years. Five billion dollars over five years is $25 billion. They are contributing about $4.5 billion out of $25 billion, so roughly 20% of their budget, so national defence contributes 2% of expected savings and foreign aid contributes 20%. That is a bit of a difference in proportionality, so who is actually paying for this deficit reduction plan, this so-called action plan?

Our foreign aid goes to the most impoverished people in the world, so it would appear that it will be the most impoverished people in this world, who happen not to vote, who will be the ones who will be paying a disproportionate share toward these expected savings.

The next line is $6.8 billion in administrative costs of government. I would be a big believer in that if in fact over the good times that had been an administrative cost that had been constrained. From 2006-09, another four budget cycles, what members have seen is a relative growth in expenditures of somewhere between 6%, 8%, and 10% on an annualized basis, which is just spending a silly amount of money over a long period of time. So one does not really think that this is actually going to happen, that there will be constraint, although there may now be a number of announcements of cancelling vacant positions so that we can have expected savings of things on which we are not actually spending money.

It is a little disturbing to actually ask the poor of this world to pay for our deficit spending. It is a little disturbing that we are not actually paying for it ourselves. That is where we are getting the expected savings.

It actually gets worse. One will recollect that a couple of years ago this House passed a bill called the Better Aid Bill (C-293 or The Development Assistance Accountability Act). The Better Aid Bill had three priorities: to focus on poverty alleviation, to take into account the perspectives of the poor, and to be consistent with international human rights standards. That is the law in this country. That was the law passed by this chamber. However, the Government has ignored that law.

The Government continues to set its own priorities. The minister has a new priority almost every year. In fact, over several governments since the year 2000, there has been something in the order of 22 or 23 priorities that have existed.
The law is that this money, the official development assistance, is to go to poverty alleviation. However, when one looks at how CIDA intends to profile its money going forward, what it shows is it projects an 8.5% decrease to the poorest nations of the world over the next year. Not only do we expect them to pay the burden because they actually do not vote and therefore have little or no influence on what happens in this chamber, but we are actually decreasing in absolute and relative terms the amount of money that the poorest nations of this world receive.

A further 8.5% will be cut from assistance to fragile countries and crisis affected communities. Haitians have just gone through a crisis, and it was amazing how Canadians stood up and contributed significant sums of money. There was a real, sincere outpouring to the nation and the people of Haiti. Yet here we are, simultaneously saying we are going to cut back 8.5% from the assistance to poor nations. Then on last night's news, we are told that the government's so-called matching funds of roughly $50 million may well end up at the World Bank. “It is a possibility”, the Minister admitted on television last night.

We say that we are helping these fragile folks. I do not even disagree with the Minister over the staging of the moneys. I think putting $100 million into an economy like Haiti is actually quite disturbing to that economy.

We have an absolute reduction, a proportionate deduction, and re-profiling. Then it gets worse, because now we are going to have a 370% increase in the advertising budget, just to say what grand folks we really are. I am sure the Conservatives have already spent $300-odd million on this, but a 370% increase in the advertising budget for CIDA when they are absolutely cutting moneys from the poorest of the poor is just wrong. It makes a very bad statement about our nation. It makes a very bad statement in this chamber and to the people of Canada, and it makes a very bad statement about the people of Canada.

This is an economic inaction plan, and it is funded on the backs of the poorest of the poor.

Hon. John McKay P.C., M.P.