Don Drummond, Scott Clark, Derek Burney, Stanley Hartt and Others Weigh in on Budget-Making and Global Economic Challenges
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FEBRUARy–MarCH, 2013 Don Drummond, Scott Clark, Derek Burney, Stanley Hartt and others weigh in on budget-making and global economic challenges Published by the Macdonald-Laurier Institute Brian Lee Crowley, Managing Director, [email protected] Editor James Anderson Contributing Writers Thomas S. Axworthy Brian Lee Crowley Velma McColl Andrew Balfour Peter DeVries Ted Menzies Brian Bohunicky Don Drummond Robert P. Murphy Scott Brison Patrice Dutil Peggy Nash Derek H. Burney Daniel Gagnier Geoff Norquay Catherine Cano Stanley Hartt Colin Robertson Scott Clark Tasha Kheiriddin Robin V. Sears Ken Coates Jeremy Kinsman Gil Troy Celine Cooper Brad Lavigne Philip Cross Kevin Lynch Inside Policy is published bi-monthly by the Macdonald-Laurier Institute. The contents of the magazine are copyrighted, but may be reproduced with permission in print, and downloaded free of charge from the MLI website. www.macdonaldlaurier.ca Subscriptions: $39.95 per year, single issue, $6.95. The digital edition is available at www.zinio.com for $19.95 per year, single issue $3.95. Printed in Canada. 8 York Street, Suite 200, Ottawa ON, Canada K1N 5S6 613-482-8327 Contents Don Drummond Budgets should articulate comprehensive, coherent plans Scott Clark and Peter DeVries Editor’s message Restoring integrity to the budget process Ted Menzies I am pleased to bring you the first issue of Inside Policy magazine Crafting a budget for 2013 and the third since the Macdonald-Laurier Institute (MLI) launched the magazine last fall. Peggy Nash In Budget 2013, the Government should With a federal budget coming soon, this issue focuses in particu- change course lar on some of the fiscal and economic challenges and opportuni- ties confronting decision-makers in Canada’s political and busi- Scott Brison ness domains. It’s interesting to note that one key decision-maker, Conservatives in search of an economic legacy Jim Flaherty, is now in the top seven in terms of time-served among Canada’s 37 finance ministers. In fact, if he serves just 15 more months on the job Mr. Flaherty would move into third place Derek H. Burney on that illustrious list. (See page 45 for a list of those he can soon Winning in a turbulent world pass in the Canadian political history record books.) Stanley Hartt In this issue, we present commentaries and analyses from an as- Two debt crises; one big drag sortment of distinguished economists, some of whom spent many on the world economy years crafting federal budgets. Among them: Don Drummond calls upon the government to seize the opportunity to turn budget-mak- Macdonald-Laurier Institute ing into a more coherent planning process; Scott Clark and Peter MLI Leading Indicator DeVries offer advice on how to ensure greater integrity and coher- ence to the budget-making process; and Stanley Hartt looks at the Brian Lee Crowley & Robert P. Murphy effect the EU and US debt crises are having on the world economy. Compared to Canada, U.S is facing a fiscal dip, not a cliff Readers will also find a new section, entitled “Political Perspectives”, where we will publish opinions and analyses from those inside the political arena. In this issue, Minister of State for Finance Ted Men- Ken Coates zies explains the budget-making process and opposition Finance crit- Leadership matters ics Peggy Nash and Scott Brison offer their respective party’s advice to the Government on how to approach today’s challenges. Alex Holstein & Peter Jones MLI Straight Talk: Assessing As you can see from the list to the right, there are also articles cover- the Iranian nuclear threat ing a broad range of issues from international commerce to global security to energy policy. Our continuing goal is to publish insight- Colin Robertson ful analyses from a range of perspectives. Most of the content in Unfinished business: Canada-US cooperation each edition of Inside Policy will be original commentaries, however we will also bring you a selection of the most relevant MLI analyses and commentaries that have been published elsewhere. Philip Cross Dutch disease is a myth We are grateful to all of the contributing writers for allowing us to share their insights with our audience. Brian Lee Crowley & Ken Coates A solution to the northern gateway impasse James Anderson Inside Policy — The Magazine of The Macdonald-Laurier Institute 31 Budgets should articulate comprehensive, coherent plans Photo: Alex Smyth By Don Drummond and provided little explanation on the implications for operations and, more importantly, objectives. The Government could use the occasion ederal budget speculation season is starting to hit full swing. Bud- of the 2013 Budget to clean up some procedural elements that would Fgets are typically viewed as vehicles for announcing new initiatives bolster the confidence of Canadians and parliamentarians in Canada’s and setting out economic and fiscal prospects. On both accounts the fiscal course. 2013 Budget will likely be a snooze. One of the challenges parliamentarians face in scrutinizing spending is The 2012 Budget did the heavy lifting on initiatives to rein in spending that the Budget and the Main Estimates, the latter being the vehicle and put the budget on track to balance. The November 2012 Economic for setting out details on departmental spending, are often inconsistent. and Fiscal Update took the hit of announcing a one-year delay in the The Main Estimates need to be tabled each year by March 1st and the anticipated return to balance. Monthly fiscal results through October Budget should be introduced well before that. That timing allows the 2012 suggest, if anything, the federal government is doing better in same economic assumptions to underlie both documents and allows the 2012-13 than set out in that Update. While some forecasters have been Main Estimates to reference any spending measures in the Budget. So, downgrading their economic outlooks for the world and Canada, incor- ideally, budgets should be tabled in January or early February. Next, as porating this information should not require large adjustments to the many as possible of the accounting and presentation differences between medium-term fiscal forecast because the Update contained significant the budget and the Main Estimates should be eliminated. Failing that, measures of prudence. there needs to be a much clearer reconciliation. Otherwise, and as hap- pens now, parliamentarians and any Canadians following fiscal matters The 2013 Budget will likely, and credibly, confirm the expectation of get lost trying to translate what are essentially two different languages. a return to balance by 2016-17, with only a narrow miss the previous year. Perhaps more importantly, by 2016-17 the federal government The Government could use the occasion of the 2013 Budget to set out will have a net debt-to-GDP ratio of just under 30 percent. This returns a new policy on Budget Omnibus Bills. There seems to be a consensus, the debt burden to the range of the 1960s and 1970s before the reces- at least outside of Government, that a brief vague reference somewhere sion of the early 1980s, along with rapid spending growth, sent it into a among hundreds of pages of budget documents is not sufficient context higher orbit, peaking at 68.4 percent in 1995-96. to ram a measure into the Omnibus Bill. Little scrutiny is then given to the measure. The original intent of the Omnibus Bill was to contain rev- From a fiscal perspective the Government was astute in acting to contain enue measures where there was some urgency in obtaining Parliamen- two of the most serious long-term fiscal pressures facing almost every tary approval. The current Conservative Government was far from the country. Federal transfers to the provinces for health and post-secondary first to stretch the protocol to include numerous spending measures. The education have been capped to grow at the rate of nominal GDP (which Government could announce a return to the original protocol and deal means they will likely grow in pace with federal revenues) and the age with spending changes through Supplementary Estimates and separate of entitlement for Old Age Security and Guaranteed Income Supple- legislation. That would take care of the unwelcome surprises. ment is being phased up from 65 to 67. Canada’s fiscal prospects look promising by our own historical record and are the envy of most other Finally, the Government could use the 2013 Budget to announce its developed countries. Nothing in the 2013 Budget will likely alter that intentions with regard to the PBO. The current Budget Officer is com- impression. ing to the end of his 5-year term March 31, 2013 and it is clear his term will not be extended. Will the Government be appointing a new The likely absence of much “news” in the 2013 Budget presents an op- Officer? Will anything be done to provide that Office with greater access portunity for the Government to use the vehicle for higher purposes. to the information required to adequately report to Parliament? Or will First, the Government could bolster the transparency and accountability the mandate of the Office be curtailed, formally or informally through of fiscal planning. And second, it could pull the pieces of policy that the choice of the new Officer and through practice? In many respects an have been introduced in recent years together into a coherent plan for underperforming PBO may be worse than not having one. the economy and the well-being of Canadians. Enough on the process of how the sausage is made. Now for the meat. The Government and Canadians are rightly proud of their fiscal record And that should revolve around using the 2013 Budget to demonstrate as Canada stands out as exemplary in the world of fiscal basket cases, to Canadians there is a comprehensive, coherent and positive plan for especially in the United States and much of Europe.