Dr. David E. Bond is the retired chief economist of HSBC Bank of Canada
The Conservatives are saying they are the best party to manage the economy. They also claim that the deficit, which was more than $54-billion this past year, will be about $11.5-billion by fiscal year 2013-14. After the release of the Economic Update by the Finance Minister, the vaunted Tory spin machine turned out endless stories of just how good the economic picture looks and how, compared with the other members of the G8, we have done and are forecast to do in the future.
There is, however, a slight problem. The Parliamentary Budget Officer, Kevin Page, a non-partisan officer of the House of Commons, does not agree with the somewhat optimistic forecasts of Mr. Flaherty and the department of finance.
The PBO, in a statement issued last February, estimated that the deficit in fiscal year 2013-2014 would be about $19-billion. Mr. Page forecast that total revenue would be about $280.7-billion (Mr. Flaherty said $277.7-billion) and expenses of $257.1-billion (Mr. Flaherty, $251.7-billion).
Mr. Page predicted the budget, without including debt charges, would be $23.6-billion in surplus (Mr. Flaherty, $26-billion). That's not that great a difference. Where they part company is in estimates of the interest that will have to be paid on the debit. Costs of servicing the national debt in 2013-14 were estimated by the PBO at $42.6-billion and the Minister of Finance predicted annual charges of only $37.5-billion. The PBO said the net impact would be a deficit of $19.2-billion and Flaherty said $11.5-billion.
How to explain the almost $7.7-billion difference? Mr. Page said the total debt will be $4.9-billion more than Mr. Flaherty, he was probably assuming a higher rate of interest. But also there are differences in the assumptions regarding economic growth with the Minister being somewhat more optimistic than Mr. Page. And of course Mr. Page did his calculations seven months earlier than the minister.
Two points flow from all of this. First, the future rate of Canada's economic growth will not be particularly stellar. Second, reaching even the deficit estimates of Mr. Page will require more fiscal discipline than the Tories have exhibited in the past. Rather than announcing multi-billion dollar spending projects, it is time to start eliminating programs or the budget will never return to balance. Of course the Tories could restore their foolish cut to the GST and end the debate, but could you imagine them doing that?