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IFSD Fiscal Credibility Assessment: Liberal Party of Canada Platform 2019 Costing

IFSD finds that that the Liberal Party Platform Costing merits an overall ‘good’ rating with a ‘pass’ on realistic economic and fiscal assumptions and a rating of ‘good’ with respect to the principles of responsible fiscal management and transparency.

Information on the scoring framework is detailed in IFSD’s Assessment: Fiscal Credibility of 2019 Federal Election Platforms.

The Liberal Party of Canada released its 2019 Party Platform (Forward: A Real Plan for the Middle Class) including a fiscal plan on September 29, 2019. The document includes policy commitments and a number of backgrounders on policy proposals, costing by the Office of the Parliamentary Budget Officer (PBO), and fiscal details.

The Institute of Fiscal Studies and Democracy (IFSD) assesses the fiscal credibility of election platforms of the major parties according to three principles:

  1. Use of realistic and credible economic and fiscal projections;
  2. Responsible fiscal management;
  3. Transparency.

The principles and scoring criteria are detailed in IFSD’s assessment framework.

IFSD finds that that the Liberal Party Platform Costing merits an overall ‘good’ rating with a ‘pass’ on realistic economic and fiscal assumptions and a rating of ‘good’ with respect to the principles of responsible fiscal management and transparency.

Overall the fiscal strategy in the Liberal Party Platform is one of modest fiscal expansion. There is a modest increase in the budgetary deficit over the medium term totalling some $30 billion over the next four years. The deficit increases initially (over 1 percent in 2020-21) and is projected to decline to $21 billion in 2023-24 (about 0.75 percent).

Proposed tax revenue decreases are largely offset by tax revenue increases. Planned spending is up about $10 billion in 2023-24. The debt to GDP ratio declines slowly over the medium term.

While there are close to 50 new fiscal measures, there are five measures that use about 70% of additional proposed deficit financed resources.  These measures include, the increase to the basic personal amount and additional resources to families, students, seniors and health care.

The Liberal Party Platform uses the PBO pre-election baseline forecast. The economic challenges highlighted in the platform largely relate to affordability and the need to strengthen the middle class.

The fiscal challenges are largely focused on supporting economic growth while maintaining a modest annual deficit and a sustainable fiscal structure. The Liberal Party Platform gets good marks for using the independent PBO baseline and modest marks for articulating economic and fiscal challenges.

The Liberal Party Platform uses a fiscal strategy based on four principles to guide fiscal policy over the medium term and ensure long term fiscal sustainability. Three of these principles include a fiscal rule (declining debt to GDP); a commitment to economic stabilization (if the economy falters); and a commitment to a triple A bond rating (likely necessitating fiscal sustainability). IFSD thinks the Liberal Party Platform merits a ‘good’ rating with respect to responsible fiscal management given the planned economic environment and the four-principle fiscal strategy.

The Liberal Party Platform scores a ‘good’ rating for transparency. It has met a good standard for party platforms with the use of the PBO forecast and costing, extensive backgrounds on policy and details on fiscal planning. Many of the proposed new measures are relatively straightforward to implement. However, some key policy commitments related to the environment and First Nations will require significant consideration for implementation.

1.1 Platform uses the latest PBO baseline economic and fiscal forecast.

Liberal Party Platform score: 2/2

  • The platform uses PBO’s baseline economic and fiscal forecasts.

1.2 Platform articulates economic challenges.

Liberal Party Platform score: 1/2

  • The Liberal Party Platform acknowledges that while the economy is currently performing well the Government must be ready to respond to future challenges with the economic and fiscal tools at its disposal. 
  • There are, however, fundamental economic challenges such as low productivity growth and the declining role of the manufacturing sector that are not explicitly addressed.
  • The platform's principal focus appears to be affordability for low- to middle-income Canadians.   

1.3 Platform articulates fiscal challenges

Liberal Party Platform score: 1/2

  • In the long-term, the federal fiscal structure is sustainable.  In this context, the Liberal Party Platform has room to address future fiscal challenges.  For instance, the planned net tax increase is small, and expenditure increases add only 0.3 percentage points to the ratio of total spending to GDP.  Furthermore, the debt to GDP ratio is estimated to gradually decline.
  • The Liberal Party Platform notes that there may be fiscal risks in the future.  However, the platform does not explicitly define possible fiscal challenges, nor a plan to address them.

2.1 Platform commitments are consistent with a defendable medium-term fiscal strategy and framework.

Liberal Party Platform Score: 1.5/2

  • The Liberal Party Platform is based on four principles including three that support a defendable medium term strategy, including a budget constraint fiscal rule (a declining debt to GDP ratio); an economic stabilization commitment (to respond to economic weakness); and a commitment to maintain a triple-A debt rating (signalling the focus on fiscal sustainability by rating agencies).
  • While no information is provided on spending or revenue growth either in nominal, cyclically adjusted terms, or as a share of GDP, sufficient information is provided to perform these calculations given the use of the PBO baseline and the level of detail on revenue and spending measures.
  • The budgetary deficit is held a modest amount over the medium term, averaging less than 1 percent of GDP, which is forecasted to be sustainable. Over the next four years, this translates into an accumulated deficit increase of about $30 billion more than the current baseline.
  • From a fiscal perspective, measures to reduce revenues are largely offset by revenue enhancing measures.  It should be noted that only three of the twenty-two measures costed by PBO, with fiscal costs greater than $500 million per year, were deemed to be high risk. 
  • Spending increases at a moderate rate, with the most substantive measures targeting families, students, seniors, and health care.  There is a likely net policy impact of measures favouring people with less income, e.g. students and seniors.

2.2 Platform’s commitments maintain long-term fiscal sustainability.

Liberal Party Platform Score: 2/2

  • The Liberal Party Platform has an implicit (not explicit) commitment to fiscal sustainability.  For instance, one of four fiscal strategy principles relates to maintaining a triple-A credit rating, which would likely require a sustainable fiscal structure.
  • Recent analysis by the Department of Finance and the PBO indicate that federal finances are sustainable.
  • The Liberal Party Platform highlights fiscal sustainability analysis and the fact that the federal fiscal structure is sustainable.
  • The Liberal Party Platform commits to modest annual budgetary deficits over the medium term. The debt to GDP ratio declines at a modest pace. Extrapolating revenue and spending commitments over the long-term (using current assumptions), the platform commitments would be sustainable on a fiscal basis. 

2.3 The fiscal planning framework contains adequate provisions for unforeseen events and/or forecasting errors.

Liberal Party Platform Score:  1.5/2

  • The Liberal Party Platform does not formally include prudence adjustments in the fiscal planning framework.
  • In its costing of additional measures, the Liberal Party Platform references analysis by Scotiabank to suggest that revenues could be higher than anticipated over the short-term.
  • Budget 2019, as with previous budgets, included a modest prudence adjustment which one would expect to continue as a matter of practice.
  • One of the four fiscal strategy principles indicates the willingness of the Liberal Party to use fiscal stimulus in the event of economic weakness.

3.1 Platform provides economic and fiscal outlook for five years (2019-23) with details on key indicators, which incorporate the proposed policy measures.

Liberal Party Platform score: 1.5/2

  • The Liberal Party Platform presents its measures with associated costs and expected impacts for substantive revenue and expenditure commitments.
  • Since the net economic impact of the proposed policy measures in the platform would be relatively small, there would not be significant feedback effects from these measures on the Liberal Party Platform’s fiscal plans.
  • The platform provides qualitative details on how the proposed measures would impact different demographics.  The score reflects the lack of a detailed account of the quantitative impacts of the policy measures.

3.2 Platform provides sufficient detail on its proposed policy measures

Liberal Party Platform score: 2/2

  • The platform provides sufficient detail on the nature of proposed measures, including their goals and their expected impacts on Canadians. 
  • All significant measures were costed by the PBO (22 costings).
  • There is sufficient information to allow voters to consider potential differences with the status quo and proposals from other parties.

3.3 Platform provides a clear implementation plan for key policy measures

Liberal Party Platform score: 1.5/2

  • The Liberal Party Platform spending measures in general, are clearly defined and relatively straightforward to implement. 
  • Exceptions include the commitment to achieve net-zero emissions by 2050, which lacks specific detail on potential instruments and effects on the economy and government finances, as well as the implementation of measures related to First Nations.

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