It must have been tempting for Prime Minister Mark Carney to appoint an absolute blockhead as the new parliamentary budget officer. Instead, in Annette Ryan, he has installed a 30-year public service veteran with Finance Department experience who has probably seen it all when it comes to juggling the numbers and concealing errors.
Ryan's Sharp Critique
Ryan appeared at the Senate finance committee on Tuesday and made it clear that she is more interested in results than in the government's glossy, aspirational announcements. While the official Opposition is all at sea, the PBO is now the opposition in residence.
Ahead of her appearance at the committee, Ryan's office issued five papers on Monday that dismembered the government's spring economic update last week. “The (update) presented more questions than it did answers,” Ryan told senators.
Fiscal Space and Defence Spending
On the big picture, the PBO said the government's fiscal space improved, thanks to a combination of higher revenues and lower spending, but resulted in an unchanged deficit track because the government spent the windfall on new policy measures. In fact, the spring update failed to provide an accurate picture of future deficits because it didn't include the additional impact of raising defence spending to five per cent of Canada's GDP by 2035/36, which the PBO said would add $63 billion to the budgetary shortfall and 6.3 per cent to the debt-to-GDP ratio.
Fiscal Anchor Criticism
Ryan's office was sharply critical of the government's decision to ditch the traditional fiscal anchor of a falling debt-to-GDP ratio in favour of a declining deficit-to-GDP level and a commitment to balance operating spending with revenue by 2028/29. By these measures, the government is on track. But the PBO repeated previous criticism that what the government deems to be “capital expenditures” is broader than the International Monetary Fund's definition, and as a result “may overstate capital formation.” In other words, the Liberals' attempt to mark their own fiscal homework is not worth the paper it's written on.
Major Projects and Housing
The Office of the Parliamentary Budget Officer was stating the obvious in its assessment of major projects by saying that their economic impact is contingent on their successful implementation and ability to attract third-party investment. It said the spring update did not provide detailed information on progress in this regard. It noted that only two of 15 projects being overseen by the Major Projects Office are under construction and the two biggest — LNG Canada Phase 2 and Ksi Lisims LNG — have yet to reach a final investment decision. The PBO pointed out that the government has not published any progress reports or approved timeline scorecards.
On Ottawa's plan to double the pace of homebuilding over the next decade through its Build Canada Homes agency, the PBO office noted that no specific targets or metrics on the pace of building have been provided. However, it said housing starts have continued to lose momentum and estimated that Build Canada Homes will only add around 26,000 new units over the next five years. The PBO has said that 10 times that number of new homes will be needed over the decade to close the supply gap.
