Thursday, March 11, 2010

Budget Officer: 'Flaherty Wrong, Deficit $10 Billion Bigger"

A report by Kevin Page, Canada's independent Parliamentary Budget Officer, suggests that Jim Flaherty's budget is wrong, and instead of a reduced deficit of $1.8 billion in 2014/15, Canada will be facing a dramatically higher deficit of $13 billion.

Kevin Page speaking in an interview on CBC(video below) describes how he, using the same forecasted numbers as Finance Minister Jim Flaherty, reached a dramatically higher deficit for the 2014/15 fiscal year. Two reasons he gives for the difference is that the government was both not prudent and not transparent.

In regards to the federal government ignoring future risks, the PBO emphasized that the new budget depends on an improved economy in the short-term, however in the coming years Canada's financial situation is only going to get worse due to an aging workforce. Mr. Page speaking on the CBC program Power & Politics stated:

"What we're saying is it's structural. And what I think we're saying as well that there is a question whether or not the framework the finance minister put forth is prudent; have we taken the necessary precautions to deal with the risks we know are going to happen."
The other reason why the PBOs numbers differed from the Finance Ministers is a lack of transparency, that the government refused to hand over future tax rates and projected tax bases and thus Mr.Page's projections do not include any potential tax changes:
"There are issues of transparency which we highlight in the report. We would like to, for parliamentarians, we'd like to reconcile our projections for the next five years with Mr.Flaherty's projections, and we can't do that because we can't get access to their tax bases and their effective tax rates. And we would like to as well look at detailed departmental spending for all departments, five years up, planned approved spending. We're seeing on both counts that they're saying its a cabinet confidence. We think in this environment where we're generating deficits of 50 billion dollars in 2009/10, we need more transparency, not less."
Considering the government refused to hand over documents relating to possible changes in taxation and that Jim Flaherty's projections are over $10 billion more than Kevin Page's, one must consider whether this government sees potential increases in taxes in the upcoming years. What else could fully explain the sizeable discrepancy between these two projections?

No comments: