The Economic and Fiscal Outlook 13 November 2018

Outline PBO 2.0 Medium-term economic and fiscal outlook Long-term fiscal sustainability

PBO 2.0 Parliament of Canada Act Independent Agent of Parliament Budgetary Transparency Electoral Platform Costing

PBO 2.0 Electoral Platform Costing 10-Year Economic and Fiscal Baseline On request, individual measures costed Published when announced

October 2018 Economic and Fiscal Outlook (EFO)

The starting point Percentage points Sources: Statistics Canada and Parliamentary Budget Officer.

U.S. and Canadian tariffs $ millions Source: Statistics Canada.

Canadian economic outlook Contributions to real GDP growth, percentage points   Projection 2017 2018 2019 2020 2021-2023- Consumption 1.9 1.3 1.0 0.9 Housing 0.2 -0.1 -0.5 0.1 Business investment 0.3 0.8 0.4 Government 0.6 Exports 1.1 1.7 Imports -1.2 -1.4 -0.7 -0.6 Inventory investment -0.4 0.0 Real GDP growth 3.0 2.1 1.8 1.5 Additional indicators, % Potential GDP growth 1.6 Output gap 0.7 Sources: Statistics Canada and Parliamentary Budget Officer.

Household financial vulnerability % of disposable income % of disposable income Sources: Statistics Canada and Parliamentary Budget Officer.

Housing sector adjustment % change % of GDP Sources: Statistics Canada, Teranet/National Bank of Canada and Parliamentary Budget Officer.

Canada’s investment climate Foreign direct investment in Canada, $ billions Source: Statistics Canada.

Canadian and U.S. crude oil prices US$ per barrel US$ per barrel Sources: CME Group and Parliamentary Budget Officer.

Uncertainty around GDP projection Nominal GDP, $ billions Sources: Statistics Canada and Parliamentary Budget Officer.

2017-18 financial results $ billions Actual PBO April 2018 Difference Revenues   Personal income taxes 153.6 150.9 2.8 Corporate income taxes 47.8 46.6 1.2 Non-resident income taxes 7.8 0.0 Excise taxes/duties 53.8 53.0 0.8 EI premium revenue 21.1 20.8 0.4 Other revenue 29.4 29.2 0.2 Total revenue 313.6 308.3 5.3 Program expenses Major transfers to persons 93.8 94.2 -0.4 Major transfers to other levels of government 70.5 70.6 -0.1 Direct program expenses 146.4 138.4 8.0 Total program expenses 310.7 303.2 7.5 Public debt charges 21.9 23.9 -2.0 Total expenses 332.6 327.1 5.4 Budgetary balance -19.0 -18.8 Sources: Finance Canada and Parliamentary Budget Officer.

Federal fiscal outlook Actual Projection $ billions 2017-2018 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024 Budgetary revenues 313.6 325.3 337.7 352.0 364.1 377.8 392.0 Program expenses 310.7 321.0 331.5 338.5 345.6 353.8 364.6 Public debt charges 21.9 23.7 27.4 30.9 33.3 35.3 36.8 Total expenses 332.6 344.7 358.9 369.4 378.9 389.1 401.4 Budgetary balance -19.0 -19.4 -21.3 -17.4 -14.8 -11.2 -9.4 Federal debt 671.3 690.6 711.9 729.2 744.1 755.3 764.7 % of GDP   14.6 14.5 14.7 14.4 14.3 14.1 13.9 13.7 1.0 1.1 1.2 1.3 1.4 15.5 15.4 15.2 15.1 15.0 -0.9 -0.7 -0.6 -0.4 31.3 30.7 30.3 29.9 29.3 28.7 Sources: Finance Canada and Parliamentary Budget Officer.

Uncertainty around federal deficit $ billions Sources: Finance Canada and Parliamentary Budget Officer.

Uncertainty around federal debt ratio % of GDP Sources: Finance Canada and Parliamentary Budget Officer.

September 2018 Fiscal Sustainability Report (FSR)

Fiscal sustainability Fiscal sustainability means that government debt does not grow continuously as a share of the economy PBO assesses fiscal sustainability using the fiscal gap, which is the difference between current fiscal policy and a policy that is sustainable over the long term, expressed as a percentage of GDP The fiscal gap represents the immediate and permanent change in revenues, program spending or combination of both that is required to stabilize a government’s net debt-to-GDP ratio at its current level over the long term

Senior dependency ratio % Sources: Statistics Canada and Parliamentary Budget Officer.

Provincial-territorial health spending % of GDP Sources: Statistics Canada, CIHI and Parliamentary Budget Officer.

Real GDP per capita Chained 2007 dollars Sources: Statistics Canada and Parliamentary Budget Officer.

Government net debt relative to GDP % of GDP Sources: Statistics Canada and Parliamentary Budget Officer.

Net debt-to-GDP: PTLA governments % of GDP   2017 2042 2067 2092 Subnational (consolidated) 25.7 35.9 66.7 108.6 Newfoundland and Labrador 31.6 76.0 228.7 518.3 Prince Edward Island 30.3 8.4 74.8 209.6 Nova Scotia 27.0 39.0 91.0 185.5 New Brunswick 33.6 115.1 261.5 496.2 Quebec 42.9 4.3 -62.3 -183.8 Ontario 33.7 43.0 76.9 127.5 Manitoba 37.2 104.9 246.2 449.8 Saskatchewan 10.6 19.4 55.2 110.9 Alberta 1.6 43.6 100.5 163.8 British Columbia 5.7 8.9 17.9 14.8 Territories -0.8 300.4 763.2 1380.2 Sources: Statistics Canada and Parliamentary Budget Officer.

Fiscal gap estimates % of GDP Sources: Statistics Canada and Parliamentary Budget Officer.

Contributions to PTLA fiscal gap % of GDP Sources: Statistics Canada and Parliamentary Budget Officer.

Key takeaways Over the medium term, we expect growth to slow as the Canadian economy comes to rely less on consumer spending and housing, and more on business investment and exports. We project federal budgetary deficits to persist through the medium term and federal debt-to-GDP to decline to 1½ percentage points below the Government’s official debt anchor in 2020-21. From the perspective of the government sector as a whole, current fiscal policy in Canada is sustainable over the long term. However, this masks an unsustainable provincial-territorial fiscal situation. With the exception of Quebec, the public finances of provinces and the territories are not sustainable under current policies.

Questions/comments?

Major federal transfers to persons % of GDP Sources: Finance Canada and Parliamentary Budget Officer.