April 28, 2010 / 3:32 PM / 10 years ago

Canada's budget officer urges more transparency

* Ottawa should provide more details of fiscal assumptions

* Estimate of structural budget balance needed

* Potential GDP estimate raises questions

OTTAWA, April 28 (Reuters) - The Canadian government should publish more details about how it plans to balance its budget in the medium term and avoid a permanent deficit, the country’s parliamentary budget officer said on Wednesday.

The Conservative government, which slid into deficit during the recession after a decade of surpluses, has promised to balance the books after the economy is fully recovered, and it has vowed not to allow a structural deficit.

But Budget Officer Kevin Page, tasked with providing Parliament with his assessment of Ottawa’s finances, said there has not been enough transparency in the math behind the government’s fiscal forecasts.

“Estimating a government’s structural budget balance is crucial because, while the cyclical component of the budget balance may be expected to dissipate over a medium-term horizon as the economy returns to its potential, the structural component may necessitate policy actions,” said a report by Page’s office.

The report cited the example of the United Kingdom, where the government is required to provide details of its fiscal situation, adjusted for swings in the economic cycle.

In March, a week after Ottawa presented its budget, laying out plans to move back to surplus in 2015-16, Page said he still expected a small structural deficit by that year and bigger deficits in prior years than those forecast by the government.

For example, for 2013-14 and 2014-15, he sees deficits of C$16.3 billion ($16.1 billion) and C$12.3 billion, respectively. That compares with government forecasts of C$8.5 billion and C$1.8 billion, respectively, down from an estimated 2010-11 deficit of C$49.2 billion.

To estimate the structural budget balance, one needs to make judgments about potential gross domestic product, a measure of the economy’s capacity to grow, and of the output gap, which compares actual GDP to potential GDP, Page said.

Neither variable is easily measured, so estimates vary depending on the institution. The Finance Department’s latest budget suggests it is more downbeat than others.

“Finance Canada’s estimate of the output gap indicates that the Canadian economy was operating well below its potential in 2008 and will not return to its potential over the medium term, which raises the following questions that parliamentarians may wish to examine,” said the report.

The list of questions includes an explanation of why the government thinks the economy was so weak prior to the recession, why it thinks potential GDP will improve and how do these calculations affect its budget planning.

$1=$1.01 Canadian Reporting by Louise Egan; editing by Rob Wilson

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