Question Period Note: PBO Budget 2021

• Today, the Parliamentary Budget Officer (PBO) released his assessment of Budget 2021 and issues for parliamentarians.

"• The PBO’s economic outlook shows a rebound of 5.6% in the economy in 2021, broadly in line with Budget 2021 forecast.
• Despite encouraging signs of resilience of the economy, we are far from the finish line.
• The virus remains a serious threat to Canadians, and bold action continues to be necessary to fight COVID-19 and support people and businesses through the remainder of this pandemic.
• Budget 2021 outlined the government’s economic and fiscal strategy, which allows flexibility in response to changing health and economic conditions over the short-to-medium term while delivering stronger growth and helping ensure the sustainability of public finances over the longer term.
If pressed on the economic impacts of the Recovery Plan
• The PBO only factored in what they consider to be the stimulus part of the recovery plan, leaving the extension of crucial support measures and COVID-19 spending out of their analysis.
• The strong fiscal support provided since the start of the pandemic has helped avert a much worse economic crisis.
• The fact that we are seeing resilience and the Canadian economy bouncing back when restrictions are lifted has a lot to do with the fiscal support that has been and continues to be provided.
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"IN-BRIEF
• The PBO expects real GDP to rebound from a contraction of 5.4% in 2020 to growth of 5.6% in 2021. This is 0.2 percentage points lower than the Budget 2021 forecast. PBO’s lower real GDP growth outlook extends over the forecast horizon. However, the PBO expects the level of nominal GDP to be about $5 billion higher on average per year compared to Budget 2021. The higher level of nominal GDP mainly reflects higher GDP inflation for 2021.
• The PBO projects larger deficits than forecast in Budget 2021, in particular in the near term, with a $370.8 billion deficit expected in 2020-21 and $160.9 billion deficit expected in 2021-22 (compared to $354.2 billion and $154.7 billion, respectively in those years, in
Budget 2021).
• In terms of the estimated economic impacts of the Recovery Plan, the PBO only factored in what he considers to be the “stimulus” portion of the Plan, and has excluded FES 2020 measures and all COVID-19 spending, including support measures: Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy, and Canada Recovery Benefit. Tangibly, this translates into a difference of estimated job impacts of roughly 330,000 versus 75,000 jobs. In our view, excluding COVID support program spending overlooks the fact that in the absence of these programs, output and employment levels would have been much lower.
• The PBO indicates that the government’s fiscal anchor of a declining federal debt-to-GDP ratio and the ratio’s relatively-flat profile over the projection period means that the majority of the fiscal room available has potentially been exhausted – indicating that any substantial new permanent measures would need to be financed through increased taxes or reduced spending or see the ratio rise.
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