Leading economists want less talk, more numbers from federal budget watchdog

This yr, deuce things testament bechance to Canada's financial watchdog: Interim Parliamentary Budget Officer Jason Jacques will be replaced or made permanent, and the Organization for Economic Co-operation and Development (OECD) will publish its review of the office.

"I think Canada is very lucky to have the PBO, and to have a body that has respect from seemingly all stakeholders that we talked to," he said.

While the OECD has been looking at the PBO's office, and not any particular PBO, economists in Canada have been doing both.

They say just because the office has a solid reputation, it doesn't mean it can't be improved.

These economists say that should start with more numbers and less commentary from whomever is appointed to run the office and — when possible — they'd like to see an increased use of peer review for its reports. 

These changes, economists say, will help the office's appearance of objectivity, as well as its ability to identify potential errors or points that can be taken out of context in a politically charged environment.

"Anytime you have analysis on complicated policies, especially forward-looking implications of those policies, there's going to be reasonable scope for disagreement," said Trevor Tombe, director of fiscal and economic policy at the University of Calgary's school of public policy.

"The initial error is rarely a big deal. Everything hinges on what comes after," he said, quoting economist Edmund Clark, his former boss at TD.

The call for less commentary comes after Jacques's controversial appearance before a parliamentary committee in September when he described the health of Canada's federal finances as "stupefying," "shocking" and "unsustainable."

"There should be no commentary, no policy commentary, no analytical commentary that goes outside the report," Page said more recently. "I think the parliamentary budget officer should be neutral with respect to policy implications."

PBO's words of warning about Canada's finances ‘just wrong,’ says predecessor

While Drummond, Page's former boss at the Department of Finance, agrees with Jacques's take on the state of Canada's finances, he wasn't crazy about the PBO's language at committee either.

"All the adjectives he used, maybe that's not his place to do that," Drummond said. "He did torque it up, but I gotta admit … I think the numbers are concerning."

Christopher Ragan, the founding director of McGill's Max Bell School of Public Policy and the former chair of Canada’s Ecofiscal Commission, says the country's finances look sustainable for now. But he says a major shock like the COVID pandemic — or two smaller shocks in close succession — would push Canada dangerously close to its debt wall.

Hitting that limit would affect Canada's credit rating and its ability to borrow cash, potential consequences Ragan says should be drawn from the numbers, not commentary.

"I think we want them to be: 'Just the facts, ma'am,'" he said.

He softened his language in his analysis following the release of November's federal budget.

Budget watchdog calls federal spending 'stupefying, shocking'

"When I'm at committee and I use those, when I use that language, it distracts from the understanding that parliamentarians have of the issue and everyone's focusing on … those two words," Jacques said.

He said the numbers in his September analysis stand up on their own.

Jacques says if he is made permanent PBO when his six-month interim position ends, he wants the office to emulate the U.S. Congressional Budget Office (CBO), where the person leading it is virtually unknown but its work still contributes to public debate.

"I would bet good money you don't know who the head of the CBO is, nor what he looks like," Jacques said. "In the case of the U.S., they're focused on the institution, the numbers."

Blondal said the OECD's review will look at how the PBO measures up against nine key principles. One of those benchmarks is external evaluation — the degree to which the PBO uses peer review for its research, if the institution itself is reviewed annually and whether it seeks outside advice to focus its perspective.

The PBO does have some of its work peer reviewed, Jacques says. But issues around how the last PBO evaluated the carbon tax have prompted economists to suggest it could be used more widely.

A political whirlwind erupted following a March 2022 report, and an updated report the following year, where the PBO studied whether households got more or less from the Canada carbon rebate than what they paid in carbon pricing.

On that measure, most Canadians got back more than they paid. But the report also analyzed how much the carbon tax cost the economy — and found when that was measured, most households were worse off.

That analysis omitted any benefits of "mitigating climate change," Drummond said.

Carbon tax won’t hurt Canadians as much as first reported: revised PBO analysis

"I was very upset with the Parliamentary Budget Office for doing that. It was very sloppy. And you either put in both sides or you stick to the static calculation."

Page and Ragan also took issue with the PBO carbon pricing analysis, noting it didn't compare the carbon pricing system to having no climate policy — or an alternative policy.

"It seems to me, in that case, they probably didn't have outside reviewers," Ragan said.

Tombe said the PBO was focused on the fiscal implications of a carbon tax and it shouldn't be expected to include every possible angle on a specific policy when embarking on a study.

"I think the problem with how that carbon tax paper landed was in how many individuals in this debate don't engage in good faith," he said. "That's not a critique of the PBO."

Jacques said the methodology for those reports was not peer reviewed until they were updated in 2024, when the analysis was corrected for an unrelated reason — the erroneous inclusion of the industrial carbon price in calculations on the consumer price.

When it came to the 2024 update that filtered out the industrial carbon price, Jacques' office said the PBO got "feedback" from the Congressional Budget Office and the Netherlands Bureau for Economic Policy Analysis (it's equivalent to Canada's PBO) on methodology and assumptions.

He said he's open to expanding the use of peer review, especially on reports that step into politically fraught territory but noted that won't eliminate all potential controversy.

"The mandate of the office is to produce numbers for things that parliamentarians are debating and voting on. And if it's being debated and voted on in Parliament, it's going to be controversial," he said.

When the OECD report is published, it's not likely to specifically target the carbon pricing analysis, but it will deliver its take on the PBO's use of peer review.

Jacques, who has been at the PBO for 17 years, said regardless of whether he is still PBO after March 3, he will stick around to help the new PBO continue and improve on the way it fulfils its mission to provide independent costing for government programs.

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