{"id":947,"date":"2009-05-27T21:46:14","date_gmt":"2009-05-28T01:46:14","guid":{"rendered":"http:\/\/www.cusjc.ca\/?p=947"},"modified":"2009-05-29T08:20:21","modified_gmt":"2009-05-29T12:20:21","slug":"why","status":"publish","type":"post","link":"https:\/\/www.cusjc.ca\/?p=947","title":{"rendered":"Why?"},"content":{"rendered":"

Elly Alboim<\/strong><\/p>\n

Two days into the $50 billion dollar deficit and I still don\u2019t understand why. There are actually a few whys I don\u2019t understand. <\/span><\/p>\n

Why was the forecasting so far off? <\/span><\/p>\n

Why has the deficit risen so high, so quickly? <\/span><\/p>\n

And why are we getting a new deficit projection not even two months into the new fiscal year? <\/span> <\/span><\/p>\n

I was involved in ten full budget cycles while consulting at Finance Canada. I learned a lot about how the data flows in, how projections are made, what considerations come to bear in public reporting, and when in the cycle adequate certainty develops. <\/span><\/p>\n

No part of what\u2019s going on now makes much sense.<\/span> <\/span><\/p>\n

<\/p>\n

Usually, Finance Canada is hard pressed to come up with internal forecasts for the coming fiscal year by the normal end of June internal accounting for cabinet summer planning sessions. This is a full month earlier than that.<\/span><\/p>\n

Normally, Finance Canada is loathe to update projections without providing the underlying data to reconcile the numbers. It has not done so beyond vague and notional reasons provided in a fifteen second scrum burst by the Minister. There is no paper. There has been no updating of the underlying economic assumptions that drive fiscal calculations.<\/span> <\/span><\/p>\n

For that matter, public economic projections by private sector economists continue to have large variances. The Bank of Canada\u2019s forecasts have been, to be generous, fluid.<\/span><\/p>\n

The data about personal income tax flow is at best fragmentary at this point. Corporate tax returns for the first quarter of 2009 are also still being assessed and are not entirely germane for the 2009\/10 fiscal year (which began on April1) though they provide directional clues. Corporate losses for 2008 ARE in but no one can know for how long they will be carried forward and against what profits in what future year they will be applied. The same is true for personal capital losses in calendar 2008 and the early part of calendar 2009 \u2013 the period of significant market losses.<\/span> <\/span><\/p>\n

Presumably, given the state of the economy, internal reporting has been accelerated and scrutiny is much more intense. But it is very unlikely the department has much confidence yet in its assessment of fiscal 2009\/10. Further, to issue a forecast so much larger than the budgetary forecast would cause great angst within Finance and strong internal demand for a high level of certainty<\/span><\/p>\n

There is no imperative, legislative or precedential, to report out publicly less than 60 days into a fiscal year unless there are fiscal actions being planned for an imminent economic statement. But there is no hint of that. In fact, given the need to build consumer confidence, most would argue that releasing fragmentary and unsupported negative projections would have the opposite impact.<\/span> <\/span><\/p>\n

Further, after its performance in November and its general contempt for transparency, it is unlikely the government has suddenly decided the public has a Right to Know.\u00a0 <\/span><\/span><\/span> <\/span><\/p>\n

There must be strategic political reasons to have released the new projection. <\/span><\/p>\n

Perhaps it is to justify a refusal to move on EI. Or to allow for a rethink of the rate and size of the release of infrastructure spending. Or to raise the apparent stakes of forcing an election in the middle of a deteriorating fiscal framework. But the inevitable impact on the credibility of the Minister, Department and government would have been obvious. <\/span>The political cost\/benefit analysis is not at all clear cut. <\/span> <\/span><\/p>\n

So back to the questions. Why? And why now?<\/span><\/p>\n

Journalistic reporting has thus far been on the fact of the $50 billion. It’s now time to start looking beyond that.<\/span><\/p>\n

Update:<\/span><\/p>\n

After some calls, some aditional information that helps answer some of the whys.<\/span><\/p>\n