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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 7 - Evidence - June 16, 2016


OTTAWA, Thursday, June 16, 2016

The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:30 a.m. to study the present state of the domestic and international financial system.

Senator David Tkachuk (Chair) in the chair.

[English]

The Chair: Good morning and welcome to the Standing Senate Committee on Banking, Trade and Commerce. My name is David Tkachuk and I am the chair of the committee.

I am very pleased to welcome Jean-Denis Fréchette, Parliamentary Budget Officer, to our committee today. Mr. Fréchette was appointed Parliamentary Budget Officer on September 3, 2013. Before being appointed, Mr. Fréchette was Senior Director of the Economics, Resources and International Affairs Division of the Library of Parliament's Information and Research Service. Mr. Fréchette has worked as an economist with the Library of Parliament since 1986.

Mr. Fréchette, thank you for joining us today to speak to us about your April 2016 Economic and Fiscal Outlook. I understand that you will also take the opportunity to bring us up to speed on economic developments that have occurred since the release of your April report.

Welcome to your officials, as well. From the Office of the Parliamentary Budget Officer, they are Mostafa Askari, Assistant Parliamentary Budget Officer; Scott Cameron, Economic Analyst/Advisor; and Chris Matier, Senior Director, Economic Analysis and Forecasting.

Mr. Fréchette, please proceed.

Jean-Denis Fréchette, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you, Mr. Chair and honourable senators, for this invitation to appear and for the opportunity to discuss our April 2016 Economic and Fiscal Outlook.

Since the release of that report, as the chair mentioned, some events and factors have affected the trends in the Canadian economy, notably, of course, the wildfires in Fort McMurray, which will be included in the fall update of our outlook.

[Translation]

In the event that the committee wishes to discuss the fall update, we would be happy to present our findings to you at that time.

[English]

Our current legislative mandate is to provide independent analysis to the Senate and to the House of Commons — I should have said the "other place" because former Senator Gustafson told me to always use that expression, but I'm not a member — about the state of this nation's finances, the estimates of the government and trends in the national economy, as well as to estimate the financial cost of proposals over which Parliament has jurisdiction.

As you are aware, the government has indicated that it wanted to make the PBO truly independent of government, and to ensure that the office is properly funded. Furthermore, the government would also like to include in the PBO's mandate the costing of party election platforms so that:

. . . Canadians will have a credible, non-partisan way to compare each party's fiscal plans.

[Translation]

Those discussions are only at the preliminary stage, and we've provided the government with information on other countries where the parliamentary budget officer has a mandate to determine the costs of party election platforms. Of course, we remain available to discuss any changes to our mandate.

[English]

Finally, Mr. Chair, as per my discussion with the clerk and with your authorization, I would like to ask my colleague, Chris Matier, to provide the honourable members with a quick overview of some recent economic developments that may have influenced the growth of the national economy in the last few months.

After this overview, we will be happy to answer your questions.

Thank you, Mr. Chair.

Chris Matier, Senior Director, Economic Analysis and Forecasting, Office of the Parliamentary Budget Officer: PBO's April Economic and Fiscal Outlook was published prior to Statistics Canada's release of the first quarter economic accounts on May 31. The first quarter data indicated that the Canadian economy grew by 2.4 per cent at an annual rate, which was slightly weaker than we expected in our April report.

The end-of-quarter monthly GDP, or gross domestic product, for March showed another decline, 0.2 per cent at a monthly rate, and this was due almost entirely to decreases in mining and oil and gas extraction, and this weakness points to a lack of momentum going into the second quarter.

Further, we expect that the Canadian economy in the second quarter will also underperform relative to our April outlook because of the wildfires in Alberta. However, following such devastating events, economic activity typically recovers as lost output is recouped and repair and reconstruction get underway, and ultimately the level of economic activity will likely be higher as a result.

Since our April outlook, energy prices in the second quarter have surprised on the upside. Current West Texas Intermediate crude oil prices are about $10 per barrel higher than we anticipated in our April report and are closer to levels that we had projected four to five years out.

Turning to the fiscal side, PBO anticipated a $0.7 billion budgetary surplus in our April report for the fiscal year 2015-16. Since then, Finance Canada has released financial data for the last two months of the fiscal year, and this data reported a budgetary deficit of $2 billion over the twelve months of the fiscal year.

Accounting for the government's initiative to enhance veterans' benefits, published year-to-date data suggest a deficit between $5 and $6 billion, but the final results will depend on end-of-year adjustments still to come.

The discrepancy between the year-to-date financial results and PBO's April outlook is not outside the bounds of normal forecast uncertainty; moreover, the difference could be narrowed or eliminated following end-of-year adjustments.

The Chair: I'd like to ask a question on the request to cost parties' electoral platforms.

One thing that I've learned over time is that economists rarely agree on anything. This is going to be a very difficult situation. Do you not fear that you're going to get involved in a political process that you may not want to be involved in and that will perhaps taint the neutrality of the budget officer?

Mr. Fréchette: Thank you for the question. You have made a very good point, and that's why we are sending the message that we will be very prudent. If legislators want the PBO to do that kind of costing, we have, of course, a legislative mandate which is part of the Parliament of Canada Act, so we will have no choice. But we will be very prudent in the sense that we will propose very strict criteria. Using the last election as an example, for 11 weeks, there was a new announcement almost every week. It will be impossible to cost a platform if you have a new one every week.

Using the example of other countries, the Netherlands doesn't have a legislative mandate but they have done it since 1986. The only PBO that has a real legislative mandate is that of Australia, and they have strict rules about that. We will not use that model, but we will base some of our recommendations or proposals on that model.

The Chair: How does this happen? Does this require an order-in-council or legislation to give you the mandate? How is the mandate put in place? Do all the parties have to agree?

Mr. Fréchette: We still don't know. Those are good questions that I assume will be in the legislation; it is in the legislation of the Australian PBO. We wrote some legislative language — not real legislation — saying that it will be part of the mandate in addition to our current one, and it will have to be added in terms of how and when to do it.

We will not be able to do it, as I said, during the election campaign. The other question is, going back to what you mentioned, related to the integrity and the credibility of the PBO: How do we want to be involved in an election campaign?

The Chair: Usually what happens is all the parties fight amongst each other about how much money they all say they are going to spend and then the people decide who they want. Are you fighting back on this or are you taking it lying down and saying, "Do whatever you want"? Are you saying, "Why don't you guys leave this alone, let us deal with real numbers and not election promises?"

Mr. Fréchette: We are in the hands of the legislators and of the members of Parliament. I assume they will eventually develop the bill and there will be some discussion.

We're not fighting back, we're just, as I said, sending messages to say that everybody will have to be prudent. The parties, as well, will need strict criteria to say that, for example, by the second week after the writ is tabled, they will all have to have tabled their proposals with the PBO to do the costing. Those are some measures that will have to be implemented.

The Chair: I may come back on this, but I'll wait until everybody has had a chance to question. Senator Wallin has a supplementary.

Senator Wallin: It is just on this very topic: the chance of you being able to tell political parties that they should put their platforms out in week two is nil. I can't imagine they would agree either.

My question is more on the substance of it. There are so many unknowns when you look at the impact of stimulus or the claims on trickle-up or trickle-down theories. A lot of that stuff is impossible to know, and sometimes just extremely subjective. You'd really have to tighten this up and, once you do, what's the usefulness of it?

Mr. Fréchette: I'm going to ask Mostafa to respond, because he's really interested in the issues.

Mostafa Askari, Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: There are a couple of things, senator. Actually, one of the things we offer, instead of platform costing, what the PBO can do is provide an economic and fiscal outlook before the election starts, which every party will have to use, and that would be the basis for all the calculations that the parties do. That's one component of this.

Now, you're absolutely right, there are many uncertainties in terms of the impact of various policies on the economy and the fiscal impact, but we have certain frameworks and models that we use for our current work. The same thing can be used for election platform costing.

There will obviously be some uncertainties, some ranges around those things, but if every party has the same kind of uncertainties and issues then I think you can compare them to each other. But nothing is going to be precise; you're absolutely right. It is an issue. When we were discussing this with the government, we raised the issue that there will be a risk of the PBO getting dragged into the politics of the election, and they are aware of it and we are aware of it. If Parliament decided that we should do this, then we have to be very careful and make sure that we are not going to be politicized.

[Translation]

Senator Massicotte: Thank you for being here. I have a comment about party budgets. The public certainly benefits from having a better understanding of all the election promises that are made, since they are often flawed. In the past, countries such as the United States and Finland have successfully provided voters with more information. I'm not familiar with the mechanism used for that, but I think it involves the public expressing a desire that the government must respond to.

When I look at your deficit and surplus projections in relation to the current government, I assume a big part of the projection has to do with determining what shape the country is in, economically. I imagine you did a lot of work to ascertain the country's economic growth, information that can then be used to make projections on the government's financial situation.

How big of a job was it to come up with those figures? Obviously, you had to consider the fiscal aspect specific to the government, but what about the state of the country's economy?

Mr. Fréchette: You're absolutely right. The report we released in April, a report we actually publish twice a year, is part of what I call our "collection of regular publications." Twice a year, we undertake an economic and fiscal update on the government's finances. That means we review both short- and medium-term estimates, so from one to five years. That's an ongoing exercise we do twice a year.

You're absolutely right to point to the uncertainty involved, and Mr. Matier could speak to that later. He often talks about the degree of caution exercised by the government, particularly the last time around, as regards the discrepancy of some $6 billion in the deficit forecast.

You mentioned what other countries do. The job of estimating and evaluating costs is not only complicated, as other senators have said, but also very resource-intensive. Come election time in Australia, for instance, the parliamentary budget officer has to call on the assistance of 30 or so people across various departments — such as the treasury and finance departments — to help with election platform costing given the short time frame and the extremely demanding nature of the analysis.

Senator Massicotte: Does your twice-yearly economic projection of GDP account for a large share of the costs to come up with the government's fiscal revenues and expenditures?

Although I appreciate what you were saying when we were discussing the country's economic growth, to illustrate my point, I would highlight the fact that some 15 or 20 organizations do the same thing on a monthly or yearly basis. As taxpayers, we don't see any added value in the exercise. I realize it's something you have to do first in order to establish the status of the government's finances, but would there be a way to use another organization's projections, such as the Bank of Canada's? All the banks do.

Mr. Fréchette: I'd like to say something quickly, if I may. One of the main reasons the Conservative government created the position of parliamentary budget officer in 2006 was the government's habit in previous years of making projections only to announce surprise surpluses, as they were known. For example, the government would forecast a deficit, or perhaps even a balanced budget, but end up announcing quite a sizable surplus. That was one of the things that prompted the government of the day to introduce the Federal Accountability Act, creating an internal body within Parliament to oversee all of that. We serve parliamentarians, indeed all of Parliament. It was a matter of establishing an independent and impartial resource for parliamentarians, just as you have access to other resources. That was the main point.

It has been part of the projection-related work since the beginning, precisely because it's important to have a counterbalance. As you know, 15 private sector economists provide the Department of Finance with estimates. Yes, there are other organizations that do it, but you have a parliamentary body that does it for you. To my mind, the non- partisan impartial nature of the office is the main rationale.

Senator Massicotte: I think it adds value, given the resources that you have and the extraordinary requests you get from parliamentarians. As far as tax revenues are concerned, it makes the government's position very useful, more credible and independent, and that's a good thing. As for the economic projections, everyone gets those.

Another good example, however, is the fantastic report you did on the environmental considerations and costing related to CO2. Few people do that. It's a matter of choice. I quite appreciate projects of a less generic nature that are specific to our needs.

Mr. Fréchette: Thank you for saying that. As you know, we do both of those things, as provided for under our mandate. Keep in mind, we have a legislative mandate that includes examining economic trends, as I pointed out in my opening statement. Financial analysis clearly includes looking at trends in the country's economy, and it is also our job to calculate the costs of certain measures, including the 2030 greenhouse gas reduction target you mentioned.

We endeavour to adhere as closely as possible to our legislative mandate, with the resources at our disposal. We have 16 analysts on the team. Of course, we receive numerous requests from parliamentarians, recently working on some projects for senators, and we will continue to do that work.

Senator Massicotte: About two or three years ago, there was a dispute between the government of the day and the former parliamentary budget officer, who had a mandate to fulfill, but neither the resources nor the independence to meet the requirements in a credible fashion. In fact, there was quite a squabble over it. Is that still the case? Are things running more smoothly now? Do you have the resources to do your job professionally and competently?

Mr. Fréchette: We always do our work in a professional and competent manner with the resources we have. As I said, we have about 15 people on the team. To be perfectly frank, I should point out that we apply selection criteria in processing certain requests; we assess things such as the relevance of the study and its impact on our budget.

A parliamentarian may make a request that, after some quick calculations, we determined would cost $100 million, but projects of that kind are rare. In some cases, we won't agree to carry out a project immediately, but we will agree to do it over the longer term. In other cases, the request may be withdrawn because the parliamentarian can't wait.

The International Monetary Fund uses criteria to analyze costs, among other things. In a parliament like Canada's, we are talking about 20 or so people, not including the economic forecasting component. The International Monetary Fund recommends a team of about 20 people and, ideally, about 40 people for an office like ours.

Senator Massicotte: How many people do you have working in your office right now?

Mr. Fréchette: Fifteen analysts, including Mostafa and myself, as well as two administrative assistants.

Senator Massicotte: So that means about 33 people?

Mr. Fréchette: We're 17 in all.

[English]

The Chair: Do you see the budget officer as an officer of Parliament who gives advice to parliamentarians? Or do you see your office as one that gives advice to the public in competition with the Department of Finance, the Bank of Canada and all the other think tanks around?

Mr. Askari: Of course, our mandate is to provide analysis and estimates to parliamentarians. Our clients are parliamentarians but, at the same time, when the PBO was established there were a few of us who started in the beginning who felt that, in order to maintain credibility, we had to publish all our reports on our website. In that way, not only parliamentarians received them, but Canadians received them and external experts could receive them, and they can evaluate them and we can get feedback.

That was our operating principle at the time, and we have maintained that. Yes, our clients are parliamentarians, but we provide our reports to the public.

The Chair: If I'm asking questions of the Library of Parliament, do the answers have to be public?

Mr. Askari: The Library of Parliament has a different operating principle. They can provide confidential information and advice to members, but our operating principle is that we do not do anything confidential.

That's just to maintain our credibility and non-partisanship, because otherwise we are going to get involved in policy areas which we are not supposed to be involved in, and that's why we have chosen to be fully transparent in what we do.

Senator Black: Thank you for the work that you do on behalf of parliamentarians. It's good work.

To clarify for us, but I think more importantly for the folks watching this, I understand — and you correct me if I am wrong — that your role, quite simply, is you're the auditor of the Government of Canada, reporting to parliamentarians?

Mr. Fréchette: No, we're not the auditor. The difference between the Office of the Auditor General and our office is they do their analysis ex post while we do our work ex ante. Before events are occurring — and that goes back to the question to Senator Massicotte — we will have our own projections. We will not do value for money or auditing of a policy or public policy. We don't participate in the development of public policy. We provide tools to estimate the costs of some public policies that are on the table on legislation.

That's why, according to a motion from the House of Commons Standing Committee on Finance, they have a motion that we will do the costing of all private members' business in advance.

Senator Black: That's helpful. What you would say is that you are acting in advance as opposed to retrospectively?

Mr. Fréchette: That's correct.

Senator Black: Just so people have a snapshot as to what you do. If you confront people with the concept of a Parliamentary Budget Officer, there are a lot of question marks in people's minds. That's helpful.

Mr. Fréchette: The Honourable Senator Smith, for example, requested a report about the new 33 per cent bracket that is part of a bill right now, and we did the projection of various scenarios, how that money would be distributed.

Senator Black: I don't know whether you can answer these questions or not. If you can, you can; if you can't, you can't.

Can you please talk to us about the effects, in your view, on the Canadian economy surrounding Brexit?

Mr. Askari: We haven't really done any analysis of this. Obviously, there are people talking about the impact on the stock markets, and that may have some indirect impact on Canada but nothing that we can point to.

Senator Black: If you haven't, I should assume the Bank of Canada or the Department of Finance has? This is a risk factor.

Mr. Askari: I'm sure they have.

Senator Black: But you do not see that in your mandate, to be concerned about that as a risk factor, given that you have shared with me that you look proactively.

Mr. Askari: Prospectively, yes. Obviously, if we are going to do our projections again, which we normally do in the fall, all the developments will have to be taken into account, including the implications of any change in that.

Senator Black: You will be looking back then, because Brexit is next Thursday.

Mr. Askari: That's right. But the implications may continue for a while.

Senator Black: I'm interested in your point of view on the cost to Canada of not building pipelines to transport oil to the Atlantic and Pacific coasts.

Mr. Askari: We haven't done any work in that area, senator, so I can't answer that question.

Senator Black: If you stand at 30,000 feet and look at the Canadian economy, what concerns do you have? What would you tell us we should be worried about as the Banking Committee?

Mr. Askari: That's a very difficult question to answer.

Senator Black: Go to 30,000 feet. Should we worry about the deficit? What should we worry about?

Mr. Askari: The main challenge to the Canadian economy for the last 20, 25 years has been the low productivity growth. Whether there's a solution for that, that's a policy issue, but that has been the main problem.

Senator Black: Low productivity?

Mr. Askari: Low productivity growth. There have been many policies that have been implemented to address that, but so far we haven't really seen the results of those policies. We are still in a situation where the productivity is relatively low.

Senator Black: Any other points?

Mr. Fréchette: I attended a conference a couple of weeks ago, and they asked me that question. I mentioned productivity but, as Mostafa said, higher education and so on, it's always a question, but it doesn't seem like we have a solution or an improvement. I also mentioned interprovincial trade.

If you are above 33,000 feet and look, and your report is in that context and provides, I hope, solutions and certainly some changes to public policy. For me, having spent so much time on The Hill, it is an issue that should be solved.

I will link that to greenhouse gas emissions and the reduction. It is part of interprovincial negotiations eventually, if this country wants a carbon tax or whatever else. All the provinces will have to work more closely, with better integration of their policies. In that context, that is part of the answer that I would provide.

Senator Black: That's very helpful. Thank you very much.

The Chair: Just a supplementary on Senator Black, as senators can we ask the budget officer, if we made a request on the pipeline issue? Since we're parliamentarians and you work for us, sort of.

Mr. Fréchette: My answer is absolutely you can ask. Other senators in the past did ask questions about various issues, including former Senator Hervieux-Payette. It's still in the work plan as to the impact of CETA on Canada. We're developing a work plan on that. I told Senator Hervieux-Payette, when she retired, that I will not forget her request. Even if we don't have a request anymore, we can work on issues.

The Chair: Sometimes we forget that we can use this resource, so we should keep that in mind.

Senator Enverga: Thank you for being here today. In the last election, there was a lot of talk about net debt-to-GDP ratio. With the current situation right now and with the different policies, I just want to know your opinion about whether we are still going to have the lowest net debt-to-GDP ratio of G7 nations. Do you think that we're on the right track here or that we are going to be part of the lowest in the G7?

Mr. Askari: In our April report, we actually provided a graph at the end of the report that extended our projection for another 50 years, just to show what happens to the debt-to-GDP ratio in Canada. That exercise is done assuming that the current fiscal structure in Canada will not change. We have the same tax system that we have right now, based on the current government program, and we extend that projection forward. What we showed there was that, in fact, debt-to-GDP ratio in Canada will continue to decline over the next 40 to 50 years and eventually, if nothing else changes, the debt will be eliminated.

That is an exercise, a scenario. It's not necessarily a forecast. The scenario is conditional on the fact that, if the government does not increase its expenditures significantly or does not change the tax system significantly, we'll do that exercise and see a decline in the debt-to-GDP ratio.

Senator Enverga: You said if the government does not increase the budget significantly? Is that what you're saying? Are we spending significantly right now? Considering the deficit that we're planning, will that affect our projections?

Mr. Askari: We took what the government's plan is right now. We used our projections for the next five years based on the government's current plan, and then we extended that another fifty years beyond the five. All those changes in the expenditures, the new government's changes in their spending plans, are already incorporated into that estimate.

If there are no further changes beyond what they have already planned, then we can say that the debt-to-GDP ratio will continue to decline, which is a sign that — we used the term — the fiscal situation is sustainable in that sense.

Senator Enverga: With regard to budgeting, what are the impacts of high or low federal debt on our economic growth? What do you think will happen with our policies at this point?

Mr. Askari: The issue of the impact of debt on the economy is an open question that economists have been debating for many years. There are views on both sides of this. It's very hard to say exactly what happens: it depends on the level of debt and the situation of the economy in many other respects.

There really is no single answer to that, whether the debt will have a negative impact or not on the economy.

Senator Tannas: Thank you very much for being here. I just want to follow up on some of Senator Black's questions, simply because I think Canadians hear about you but they don't necessarily get to see you folks. This is an opportunity for all of us to learn.

I'm curious, with the 17 people in your office, what everybody is doing. How much of your time would be spent projecting expenditures? How much of your time would be focused on trying to game out the short-term revenue issues for the government? How much time would be spent on studies for parliamentarians and other projects that would go into support? How much is essentially around the parliamentary budget versus the ancillary activities? Could you give us some sense of that?

Mr. Fréchette: Everybody is looking at me. It is an excellent question.

Because we have a small team, the operating model we have is that everybody works on almost everything at some point. Of course, Chris and Scott are responsible for part of the projections for the coming fiscal outlook, as well as for the fiscal sustainability report. It's very difficult to exactly pinpoint a figure, like 40 per cent of the time on the budget or something else, so I will not be able to provide an exact answer to that.

We do have a lot and, in the past seven months, an increasing number of requests. Now it's coming on a regular, weekly basis. We have to deal with that, because sometimes we have to make a proposal and say, "This is the statement of work that we can do," that is the timing. That is taking a lot of time.

Costing, I'm not talking about costing an electoral platform but costing fiscal measures, for example, which takes a lot of time. It's difficult to separate because we work as one team, and everybody has to contribute to many other projects as well as review, because we do some review of all our reports.

Senator Tannas: But the priority would always be that kind of nugget that we talk about of what's going on with the public treasury or what's likely to go on with the treasury, in and out, within a fiscal year. Would that be fair to say?

The reason I ask is the Bank of Canada. Everybody thinks the Bank of Canada spends all of its days setting the rate for the overnight money that they loan to banks when, in fact, they never loan money to banks. Maybe once a decade they'll have to loan some money overnight, yet they have hundreds and hundreds of people working. There's a huge disconnect between what people think the Bank of Canada is and what it actually is.

I'm just interested to know, for your nomenclature and the original, how much of your time is actually focused on that versus all of the other things. As you come, over the years, for more money, for more people, as you say, it's going to be the other things. Defining that for yourselves, I think, will be a really interesting challenge, and I'd encourage you to be very clear on how much of your time is spent on these buckets.

Mr. Fréchette: We have a log of time management. You're correct in your assessment. However, I will add that, for example, when we do the core business, as you call it — budget and fiscal projections and so on — when we receive requests from parliamentarians that are related to that, it increases the time management that we have now, the time that is spent on this.

Again, I'm using the example of the new tax bracket, it is related to the budget; it is related to a fiscal measure. Therefore, the time for that week, where we work on that project, will increase because not only will Scott and Chris work on their own publications, but other people will work on the new tax bracket that is related exactly to the same kind of work.

In some weeks we will probably reach 60 or 70 per cent of our time on budget issues. Greenhouse gas emissions someone else will do, not part time but on the side, during another period where we are less busy with fiscal measures or budget measures.

Senator Tannas: Or when parliamentarians are away for the summer and are not bugging you, right?

Mr. Fréchette: That does not exist anymore with BlackBerrys.

[Translation]

Senator Day: Mr. Fréchette, my understanding was that you had 27 people on your team, including administrative staff.

Mr. Fréchette: No, 17.

[English]

[English]

Of those 17, do you develop the budget for your team or are you still a subset of the Library of Parliament?

Mr. Fréchette: We're still a subset of the Library of Parliament. We receive an envelope of $2.8 million per year from the Library of Parliament, and that has been stable since 2008, the first year of operation of the office. We receive this envelope, and it has never changed, even though the Library of Parliament has experienced lower budgets in some years, such as in 2012. We always receive $2.8 million. It's no longer equivalent to the $2.8 million that was first allocated to the office in 2008.

Senator Day: If you felt that you could implement some new initiatives, or could do more to meet the demand of parliamentarians if you had a bigger budget and more researchers, where would you go?

Mr. Fréchette: Again, that's a good question. It's difficult to answer. To answer it properly, it would depend on the mandate we have. Would it include an electoral platform? What if we are independent? The question you are asking is about who and what level the budget would be. It would be an agent of Parliament, like the Ethics Commissioner or the Auditor General; and then we would have our separate budget. I don't know. It would depend on the discussion the government wants to have eventually about reforming the mandate of the PBO.

Senator Day: Is that part of this discussion of the new government with respect to independents, the fact that you would possibly be a stand-alone agency and share some of the services?

Mr. Fréchette: In the mandate letter of the Leader of the Government in the House of Commons, he received the specific mission to make the PBO truly independent, as I mentioned, with more resources, and with this mandate of costing election platforms.

That's where we are. That's the information we have. It was mentioned during the election period; and it was in the mandate letter. In the future, we expect to see that. How many more resources we will need, we don't know.

Senator Day: I have two questions that arose out of those.

The Chair: I would ask a supplementary first. You would be an officer of Parliament as an independent? Right now, who do you work for? Do you work for the Library of Parliament? Are you in that department? How does that work?

Mr. Fréchette: The current legislation is not clear about that.

The Chair: I thought it was clear and that you worked for the Library of Parliament.

Mr. Fréchette: We are within the Library of Parliament; you are correct. Consider it a branch of the Library of Parliament, just as your analysts are within information and research services.

The Chair: Exactly.

Mr. Fréchette: The library is independent, per se. We are embedded within the Library of Parliament. My relationship with the Parliamentary Librarian is mostly around administrative issues: budget and staffing. About operations, we are totally independent. I don't report to the Parliamentary Librarian to say that I will appear before a committee, that we will publish a report, that we're working as a team on a work plan and that we receive requests from parliamentarians. We don't ever discuss that.

The only time we may have a discussion is when we have so many requests, some of which could be addressed by information research services of the Library of Parliament, we will send those requests to the Parliamentary Information and Research Service; but that doesn't relate to operations.

In terms of operating the office of the PBO, there's no relationship with the Parliamentary Librarian.

The Chair: I'm still not clear about it.

Senator Day: The term "independent" is something we understand in the Senate these days.

I have a couple of questions, and one arose out of your answer. Senator Hervieux-Payette is now retired from the Senate, but the work is continuing. What happens to that? Is it sent to where she used to be in Montreal? What happens with a report like that?

Mr. Fréchette: We call parliamentarians requesters, the person who requests a project. At that point we basically say that a parliamentarian has asked, and whether or not a person wants his or her name mentioned in the report, we will respect that, but the report will be published to all parliamentarians at the same time. It's not published for the person, per se. When a parliamentarian has an idea about costing something, we do the report.

Senator Day: A final question arose out of your comment that one of the challenges for the future is internal free trade. We sent a report to you; and I hope it has arrived. If not, I'm sure we can find more copies for you. The clerk is getting quite a few demands for copies.

One of the issues we had difficulty nailing down was the total economic impact if there was truly a free trade of goods and services in Canada. What would the economic impact be? We were going from $3 billion to $500 billion. I forget the numbers now. It was a wide range, and we couldn't really nail it down.

The Chair: It was $130 billion.

Senator Day: Have you done any work on that? Are you able to help us with that?

Mr. Fréchette: We haven't done any work on interprovincial trade. It's not something that came on our radar.

Senator Day: When you look at our report and have a chance to look at some of the recommendations, if you see areas where you might be able to help us where we didn't go deeply enough, I would be pleased to hear from you to talk about having more work done in that regard.

Mr. Fréchette: We'll do that. I'm particularly interested in beer and cheese.

Senator Day: You've heard about our report at least.

Mr. Fréchette: I've read the report, and I was told by people involved in the report that it was very creative.

Senator Smith: You mentioned that you were very helpful with the request made when the Prime Minister talked about taxing people earning over $200,000 and the redistribution concept of potentially giving back to the middle class. When that came out, I looked at it with a few other senators. We approached the Parliamentary Budget Officer, Mr. Fréchette. Basically it's a learning experience in terms of the working relationship, because a lot of the questions asked today have been on the definition of your role. Senator Tannas asked you what your mandate is and how you define yourselves.

We learned from it that an excellent group of people does super analytical work and provides options. My understanding is that the options provided are given to the senator and/or senators, and it's up to the senator or senators to figure out which option they want. You're not an advocacy group. You're an analytical group. You explained your mandate to us in terms of our relationship. We ask a simple question in terms of what you expect from us and what your mandate is when dealing with us. You mentioned that you have three groups you deal with.

We've learned from this whole process that this is an excellent group that does excellent work. When these folks were too busy, we went to the library for extra help. You referred us to another group to help us get that particular answer to our question.

I think, as we go forward, the questions Senator Tannas asked in terms of the evolution of your mandate, how many requests have you been getting for questions on policy from senators today versus say a year ago? Is this a rapidly growing part? That will help us understand the percentage of time you spend on economic outlooks a couple times a year and the other programs or studies that you do.

Mr. Fréchette: Thank you for the question. I'm in the process of writing the annual report for the last fiscal year. Those are exactly the kind of statistics I'm looking for. Yesterday I asked our administrative assistant to look at all these requests and how many we postponed or how many we said "no" to because they were not really related to any parliamentary debate.

I will be able to provide that information in the near future. Right now I don't have the exact numbers. I can tell you that since January, as I mentioned before, the number of requests coming from all parliamentarians, and a certain number from the Senate and senators, is increasing.

Senator Smith: One little comment that could be helpful for all of us is that one of the unique elements of dealing with this group of people is that when we ask policy type or advocacy type responses, Mr. Fréchette was very clear in saying, "We'll do the analytical work for you folks. It's up to you if you want to make advocacy decisions." That will be a learning experience for all of us, because when you sit down with these people and see the kind of analytical work they do, then you ask the question, "What should we do? Here are four options; which is the best one?" These folks have been clear in saying, "You have to decide which option you want to take based on the information we're giving you."

I've learned this is an evolutionary process and a work in progress, and I think it's fantastic that you came to see us today. I compliment you on the work you've done for us.

Our little study was people earning over $200,000 will be paying more tax. That money is supposed to go to help build the middle class, so we asked the question: What is the definition of the middle class and who benefits? What we learned from it is that there are a lot of surprises about who gets what in terms of money from the people earning $200,000. It may provide some opportunities to influence Parliament and the government as we move forward, but these are the types of questions that these folks are excellent at dealing with.

I thank you for all the work you've done to help us. It is a lot of work that requires a lot of help, and those 17 people in different areas are really busting their butts to get those facts and figures back to us. I thank you very much.

Senator Wallin: In pursuit of this definition, is there any equivalency in your mind with OMB or CBO on the U.S. side, the Office of Management and Budget or the Congressional Budget Office? I know the financial structure is different.

Mr. Askari: I guess one could say we're closer to the CBO in terms of their mandate and the type of work we do. Of course their relationship with Congress is somewhat different, given their political and congressional structure.

There are now actually many offices and organizations like ours among the OECD countries. This has become a growth industry, in a sense. All European countries have what they call a fiscal council now, and some of the work they do is similar to the type of work that we do.

Every country has sort of a different kind of mandate for their PBO or their fiscal council, but the bottom line is the main objective is to introduce transparency into the budgetary system and budgetary process.

Senator Wallin: If you had your druthers, would you be outside the Library of Parliament system or are you comfortable in there?

Mr. Askari: From the beginning I think we always thought that, in order for the office to be completely independent in terms of the political influence but also bureaucratic influence, it has to be a separate entity.

Senator Wallin: That's great. Thank you.

The Chair: When you say "politically independent," isn't that in the eyes of the beholder?

Mr. Askari: I think our independence comes from the way we do our work, in a sense. When we do our analysis and our projections or our costing, we don't start with an agenda or a predisposition that this is what it should look like in the end. That's how we do the work. Whatever results come out in the end would be the results.

We obviously have some training and we do our analysis and estimates based on the training and experience we have from our work in the past and what is out there in terms of the expertise of other economists or other financial analysts. It could be the case that the results are considered to be somewhat biased by somebody at the end, but that's not because of the way we have done the work. We do the work essentially without looking at any ideology or anything like that. We use our models and methodologies to provide the analysis.

The Chair: I kind of get that. It's just that as the Banking Committee we have experience with many think tanks: economic groups from all around the country. They will have differing opinions all the time on all kinds of subject matters. You're giving us your opinions, but why would it be considered more independent than any of theirs?

Mr. Fréchette: If I may, we don't give an opinion. We give quantitative analysis. Mostafa, who has been with the office from the beginning, can confirm that. The PBO never makes recommendations. As Senator Smith mentioned, we provide ammunition, so to speak, and this is a tool for you to work with.

The term "independent" is interesting because in the legislation the only time the word "independent" is used is in "independent analysis." Independence, as you mentioned, varies. It's a moving target.

I would say that independent from the executive is really important. We work for the legislative branch. We work for you.

The Chair: I got it.

Senator Massicotte: Just a little bit on that same line. When you read your own reports or projections or what you expect the future to look like based upon your assumptions, it's always very certain and convincing. I look at the Bank of Canada, which is considered to have one of the best research capabilities in the world and, even then, when you read the quarterly reports, you think "wow." But after the fact they often get it wrong, and they admit it has been wrong because it's always their computer models. Obviously, if you're wrong your usefulness goes down immensely.

What's your tracking like? When you do your projection, after two or three years, do you say we were right or we were wrong? There's no sense producing wrong reports.

Mr. Fréchette: Chris, you're the forecaster.

Mr. Matier: In preparing the economic and fiscal projections, we have an ongoing process. We will look back at the last six months, how we did it previously, and see whether or not our models have had a tendency to over predict or under predict certain key indicators.

Senator Massicotte: What's the conclusion?

Mr. Matier: In terms of overall forecast accuracy, I honestly don't have the statistics on that right now but is something we keep looking at.

Senator Massicotte: You should be comparing it to the banks because you only have value if your analysis or credibility is significant.

Mr. Matier: I would argue that accuracy is important, but it's also important to have an unbiased view. You can be very accurate and be biased and have a tendency to over or under predict.

The other point that I'd make is that we're trying to provide a framework whereby we can provide independent analysis in which the economic and fiscal sides are integrated. We have detailed analysis around the key drivers for certain revenue or spending categories and are able to provide estimates of where the economy would be if it were functioning normally.

These are the things that you typically don't see in the private sector forecasts or analysis. We also have to do this in the financial accounting framework of the government, which are the public accounts. It's very rare: There is maybe one forecaster that will provide a medium-term economic and fiscal forecast in that framework.

I take your point, accuracy is important.

Senator Massicotte: I appreciate all of that and, if it makes you feel better, good.

You provide information, and people will use it to make decisions. I presume it's not a joyride. If you get it wrong, no matter how good you feel about yourself, it diminishes its usefulness immensely, and I think you should be tracking how well you are doing and how credible your projections are.

Mr. Matier: I agree. In the past what we have tried to do to put some confidence bands around our forecast is provide these fan charts around whether it's the economy or the budgetary balance, to take away that impression of certainty, as you've said, that this is going to happen, and typically it turns out that way.

Everybody is wrong; it's just a question of when and how often. I think, going forward, this is something that I know other budget offices have formalized, and they will go back and do a post-mortem.

Senator Massicotte: The Bank of Canada does the same now.

The Chair: As officers of Parliament we can hold them accountable; it's good that we have you in front of us. This has been great. Thank you again for your offer to come back and update us on the Fort McMurray situation. I'm sure that if we do this on a regular, yearly basis, we'll tell you when you're wrong.

Senator Enverga: This will be quick. I know you are from the Library of Parliament, but I thought you were with the Department of Finance. I heard you express some concerns with regard to your report. Has the Department of Finance replied to you? Can you tell us the biggest concern that you have about the budget?

Mr. Askari: When the budget came out we expressed some concern about the way it was presented. We thought that the numbers were not completely clear in terms of how they worked out, and there were some projections for the major themes of the budget that were not provided for more than two years. That was somewhat against the trend in the past, other budgets, so we requested that information and eventually got it from the Department of Finance and we published it.

Senator Enverga: How far apart are you from the projections?

Mr. Askari: From the Department of Finance projections?

Scott Cameron, Economic Analyst, Advisor, Office of the Parliamentary Budget Officer: I guess it depends on the underlying economics as well. We were about $40 billion above the Department of Finance's planning assumption for the economy, and the fiscal outlook largely reflects that difference.

I think we are, on average, $6 billion higher, so the deficit is smaller by $6 billion over the outlook. We're more optimistic on the fiscal front, and that has to do with both our underlying economic projection but also the additional risk adjustment the Department of Finance has done in terms of lowering their expectations or adjusting the private sector forecast.

We're generally more optimistic for the fiscal outlook.

Senator Enverga: So you think your projection suggests a lower deficit?

Mr. Cameron: A smaller deficit.

The Chair: Thank you very much. While we're still public, and before we say goodbye to our guests, thank you very much for coming, we will take you up on your Fort McMurray offer.

I'd like to say, I read this article about how people don't say thank you enough, so I'd like to thank the library people, and I'd like to thank our clerk and our communications people on the last report. Everybody did a wonderful job under very tight deadlines, and I'm very sure all the senators very much appreciate it.

With that, thank you very much. I wanted it on the record.

(The committee continued in camera.)