You don’t have to be a builder to appreciate the importance of a sturdy foundation. When it comes to houses, a solid foundation keeps the house dry and warm, and protects it against the natural movements of the earth around it.
No matter how you slice it, 2017 was a standout year for the Canadian economy. Real GDP growth hit 3%, the unemployment rate touched its lowest level in decades, and inflation remained below the central bank’s 2% target. Characterized as the ‘sweet spot’ by Bank of Canada Governor Stephen Poloz, this robust economic activity prompted two interest rate hikes in 2017, and another in January 2018, as central bankers adopted a cautionary, and now gradual, approach toward monetary policy normalization.
by Alex Reeves and Randall Bartlett The old adage, “The more things change, the more they stay the same”, seems to be the cornerstone of the Government of Canada’s approach to defence policy. The federal budget was released in late February, and left many questions relating to the Department of National Defence (DND) unanswered. Specifically, where
by Helaina Gaspard As the Canada Infrastructure Bank (CIB) takes shape, it is worth taking a look at how the organization is structured to understand the governance outcomes it may generate from both fiscal and accountability perspectives. There are infrastructure and investment banks around the world with various mandates, accountability structures, stakeholders, and sources of capital.
On April 9, 2018, the Institute of International Finance (IIF) reported that global debt reached $US237 trillion at the end of last year, a $US21 trillion increase from the end of 2016. Narrowing this gigantic measure to countries reporting to the Bank for International Settlements (BIS), total credit extended to the non-financial sector was more than $US173 trillion in the fourth quarter of 2017. Of that “core debt,” $US22 trillion (70%) was outstanding in what are usually called “advanced economies”. Also, $US61 trillion (35%) was owed by general governments. The latter is almost double what it was just a decade ago. Since the BIS does not include insurance and pension liabilities and other accounts payable by governments in its measure of “core,” $122 trillion only represents a partial picture of public liabilities.
Following the release of Statistics Canada’s March 2018 Labour Force Survey (LFS), the Institute of Fiscal Studies and Democracy (IFSD) has updated its Canada JØLTS for February 2018.
Ontario is the largest province in Canada, both by population and by GDP. In the 2016-17 fiscal year, Ontario spent nearly $140 billion on over a hundred programs spanning more than thirty ministries and departments. Chart 1 illustrates the Government of Ontario’s budget expenditures of $136 billion in fiscal 2016-17, spread across what are known as ‘standard objects’ (SOs). Notably, while close to $25 billion is spent by the ministries on things like salaries and other operating expenses, over 80% of the $136 billion in budget spending is in the form of transfer payments. Transfer payments move money from the provincial government to various other levels of government, non-governmental groups, and individuals. These groups can include municipalities as well as smaller entities such as school boards and regional healthcare providers, and also people.
It was Daniel Patrick Moynihan who once said: “Everyone is entitled to his own opinion, but not his own facts.” Nowhere is this more true than in the alchemy of forecasting, where statistical models come head-to-head against old-school gut instinct. As such, there is always space for a wide range of oft-times conflicting views. And there’s no way to get around it, as even the best econometric models can’t predict an unseasonable shutdown at an automaker or an oilfield innovation leading to a rapid drop in oil prices.
Major budget documents usually dedicate a section to the debt management and borrowing strategy of the federal government. And while those pages usually do not make headline news like the major policy announcements and bottom-line deficits, they are of tremendous importance. The financial markets’ community, and taxpayers in general, can find useful information in that such a section about how the government borrows money to finance its budgetary balance, non-budgetary transactions and maturing pre-existing debt stock. In Budget 2018, while no major changes were brought to debt management objectives, several changes in their implementation going forward are worth highlighting. Most importantly, the reference to “an increased focus on the issuance of short- and medium-term bonds (2-, 3- and 5-year maturities)” has been dropped. Therefore, in the coming fiscal year, the issuances of bonds will be reduced while the issuances of treasury bills will increase. In the near term, this will have an impact on the supply of those various types of Government of Canada securities available for sale. In the medium term, those decision, keeping everything else constant, will also have important fiscal implications through higher public debt charges (PDC).
It’s been a good few weeks for the Institute of Fiscal Studies and Democracy (IFSD). Not only have we had an opportunity to ‘kick the tires’ on Budget 2018, one could argue we’ve ‘driven that lemon into the ground’ with the generous opportunities the media has given us to comment on it. But, there is still room for more commentary on this budget, as the ample fiscal room of roughly $21.5 billion over six years that magically appeared in Budget 2018 to fund new spending becomes ever more mysterious the further one digs (Chart 1).