SOME THINGS WE WOULD LIKE TO SEE CHANGED IN THE 2012 BUDGET ("optimism over experience")

There are four issues we would like to see changed in the upcoming budget.  We have written on these in previous blogs.  They are summarized here, in the hope (faint) that changes will be made.

A more realistic Adjustment for Risk

We applaud the Minister’s decision to include an “adjustment for risk to revenues”.  However, we feel that this adjustment should increase over time, rather than decline, reflecting the greater degree of uncertainty in the economic and fiscal projections as one moves forward in time.

In addition, we feel that such an adjustment should not be explicitly incorporated into the revenue forecasts, but rather be shown as a separate line item in the calculation of the deficit.

When the Liberals first introduced a risk adjustment in their 1994 budget, it was spread among the various components of the budgetary balance.  This was strongly criticized by the private sector economists as it made analysis of the components difficult.

Future budgets and updates explicitly presented the amount of prudence as separate line items (Contingency Reserve and Economic Prudence).  We would strongly encourage the Minister to once again show the risk adjustments explicitly and not bury them in revenues.  

Use of Department of Finance Forecasts

The Minister of Finance met with his private sector economic advisory group on March 5th to get their views on the National Accounts outcome for the fourth quarter of 2011 and what this meant for the final outcome for 2011 and for growth in 2012.  They did not provide him with their forecasts, as they were still in the process of assessing the fourth quarter results and the impact on their forecasts.

With the March 29th tabling of the budget, this does not leave a lot of time for the private sector economists to update their forecasts, present their results to Finance and for Finance to incorporate these results in the budget. In the meantime, the Department of Finance is preparing fiscal projections based on what they believe the average, once received, would look like.

We have consistently argued that the Government should use the Department of Finance's economic projections for budget planning and not the average of the private sector economic forecasts.  Furthermore, we feel much more detail should be provided on the economic forecasts, including forecasts of the various components of national income and expenditure, and comparison to the private sector average, among others.

Greater Clarification of the Employment Insurance Premium Rate-Setting Process

In the 2011 Budget, the Minister of Finance acknowledged flaws in the current employment insurance (EI) premium rate-setting process and launched another consultation process to “ensure more stable, predictable rates going forward”.

The upcoming budget should present the results of these consultations.  In our previous submissions to the Minister, we recommended that the Canada Employment Insurance Financing Board be abolished (it has yet to set premium rates since its formation) and that premium rates be set over a five-year cycle.  In our Open Letter to the Minister, we advocated that EI premiums be eliminated and  the lost revenues be replaced by increases in the Goods and Services Tax and Corporate Income Tax rates. 

We doubt that any of our recommendations will be accepted.  At a minimum, we would encourage the Minister to clearly show the rate assumed in the upcoming budget for all years of the Budget Plan.

Greater Transparency and Accountability

For years we have been urging the government to be more transparent in its budget planning. After all, the government was elected on a commitment to greater transparency and accountability. Unfortunately this has not turned out to be the case. The government has consistently deprived the Parliamentary Budget Office (PBO) of data and has refused to make public any internal analysis or research. The upcoming budget should contain a detailed analysis and discussion of the structural challenges facing Canada over the long term – not only for the federal government but for Canada as a whole. The government has dismissed PBO’s analysis of the impact of an aging population but has yet to provide its own analysis and projections. The government seems more intent with not providing the public with information, rather than engaging the public in discussion on critical policy issues.

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