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
Senator David Tkachuk (Chair) in the chair.
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
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
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.
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.
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.
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
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
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'
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
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.
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
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
Senator Massicotte: How many people do you have working in your office
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.
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
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
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
Mr. Askari: That's right. But the implications may continue for a
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
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
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
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
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
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
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.
Senator Day: Mr. Fréchette, my understanding was that you had 27
people on your team, including administrative staff.
Mr. Fréchette: No, 17.
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
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
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
The Chair: It was $130 billion.
Senator Day: Have you done any work on that? Are you able to help us
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
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
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
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
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
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
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
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
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
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
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
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
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
With that, thank you very much. I wanted it on the record.