OTTAWA—The Canadian Centre for Policy Alternatives, one of the independent forecasters commissioned by the House of Commons Standing Committee on Finance, announced today that is once again forecasting surpluses much higher than the official government figures.
In her report to the Committee CCPA Senior Economist Ellen Russell is predicting a surplus of $6.8 billion in 2004/05 and $9.5 billion in 2005/06, while the government is projecting surpluses of $3 billion and $4 billion, respectively. The CCPA’s calculations include the additional spending that was negotiated by the NDP and included in Bill C-48.
The federal government has a long track record of low-balling its surplus estimates and announcing “surprise” year-end surpluses. In contrast, the CCPA has consistently provided much more accurate surplus forecasts.
The CCPA report also provides commentary on Tim O’Neill’s report on the government’s fiscal forecasting process. While the O’Neill Report provides an important contribution to federal fiscal forecasting debates by identifying the government’s “no-deficit” rule as the cause of its forecasting problems, Russell disagrees with some of its recommendations.
The O’Neill Report advocates that the target for reaching a debt to GDP ratio of 25% by 2014 be lowered to 20%, or even 15% within an unspecified time frame, yet provides no substantive justification for it. Given that Canada already has the lowest debt-to-GDP ratio of all the G-7 countries, there is no necessity for Canada to prioritize debt repayment. In addition, speeding up debt repayment may perpetuate the tendency of the Finance Department to low-ball its projected surpluses.
O’Neill’s report also rejects the formation of a separate fiscal forecast agency as well as the recent practice of securing access to independently prepared quarterly reports on federal fiscal forecasting. He argues that, since the “no-deficit” rule is responsible for the government’s surplus projections, hiring outside economists to monitor and produce fiscal forecasts will not resolve the problem.
According to Russell, however, “following the logic of the O’Neill Report itself, it is important to have independent forecasts that are not subject to the biases that permeate the finance department and generate such inaccurate forecasts.”
“Establishing an independent body to provide objective and unbiased forecasts of the nation’s finances—and of budgetary proposals—would be the best way of increasing transparency and accountability in this aspect of the budget process,” Russell concludes.
The CCPA’s report to the House of Commons Standing Committee on Finance is available on the CCPA web page at http://www.policyalternatives.ca
For more information contact Kerri-Anne Finn, CCPA Communications Officer, at 613-563-1341 x306 or 613-266-9491.