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Fiscal Consolidation in Canada
June 2012
Jobs, Growth and Long-Term Prosperity
2
Economic Action Plan 2012
Economic Action Plan 2012:
Balanced approach based on prudent economic planning assumptions
Maintains Canada’s sound public finances, supported by modest and pragmatic spending reductions
Ensures the sustainability of Canada’s social programs, including needed changes to the Old Age Security program
Private sector economists continue to see sustained, modest, domestic growth
Real GDP Growth
Source: Statistics Canada; Department of Finance March 2012 Survey of Private Sector Economists.
3
per cent, period to period at annual rates
4.2
2.2
1.92.1
2.3 2.4 2.4 2.42.2
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0.0
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11Q3
11Q4
12Q1
12Q2
12Q3
12Q4
2013
2014
2015
2016
Forecast
Quarterly Real GDP Growth Annual Real GDP Growth
Economic Action Plan 2012
Budget 2012 planning assumptions are prudent
The private sector economic outlook is consistent with an expectation of a permanent loss of $120 billion in the level of real GDP as a result of the global recession
The private sector expectation for GDP inflation is consistent with largely flat commodity prices over the next five years
The Government has adjusted downward the private sector forecast for nominal GDP by $20 billion
This adjustment for risk represents a downward adjustment of $3 billion in the budgetary balance in each year of the forecast.
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Economic Action Plan 2012
The Government is on track to return to balanced budgets over the medium term
Budgetary Balance
5
billions of dollars
Fiscal Outlook
By ending temporary stimulus and controlling the growth of spending, the deficit has been cut by more than half since 2009-10
The measures taken in Budget 2012 will support the return to balance, and will help maintain Canada’s public finances on a sustainable path
-55.6
-33.4
-24.9-21.1
-10.2
-1.3
3.47.8
-60
-50
-40
-30
-20
-10
0
10
20
2009-
2010
(acutal)
2010-
2011
(actual)
2011-
2012
2012-
2013
2013-
2014
2014-
2015
2015-
2016
2016-
2017
Departmental spending reductions will lead to a leaner, more efficient federal government…
Departmental Spending Reductions
6
per cent
Economic Action Plan 2012
Savings will ramp up to $5.2 billion, representing 6.9 per cent of the review base, but less than 2 per cent of total program spending
Workforce impacts are estimated at 19,200 - 12,000 of which would be layoffs, with the balance through attrition (e.g. retirements, voluntary departures)
Review focussed on achieving efficiencies and eliminating waste - almost 70 per cent of savings stem from operating expenses
6.9
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Ongoing spending
reductions as a percentage
of review base
Ongoing spending
reductions as a percentage
of total program spending in
2016-17
Builds on previous actions to help achieve a balanced budget over the medium term
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2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Total ($ millions)
Budget 2010
Spending restraint 452 1,586 3,481 4,425 5,130 5,130 5,130 25,334
Tax fairness—closing tax loopholes 355 440 500 565 625 625 625 3,735
Total for Budget 2010 807 2,026 3,981 4,990 5,755 5,755 5,755 29,069
Budget 2011
Spending restraint 194 271 569 525 534 534 2,627
Tax fairness—closing tax loopholes 240 730 1,095 1,040 990 990 5,085
Total for Budget 2011 434 1,001 1,664 1,565 1,524 1,524 7,712
Budget 2012 Spending restraint -900 1,762 3,481 5,332 5,175 5,219 20,069
Tax fairness—closing tax loopholes 120 320 415 440 490 1,785
Total for Budget 2012 -900 1,882 3,801 5,747 5,615 5,709 21,854
Total Savings 807 1,560 6,864 10,455 13,067 12,894 12,988 58,635
Per cent of GDP 0.0 0.1 0.4 0.6 0.7 0.6 0.6
Economic Action Plan 2012
Note: Totals may not add due to rounding.
-5.8
-7.0
-1.0
0.6
3.84.7
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1.1 1.2 1.1
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Over the next five years, Budget 2012 provides a net saving of $21 billion, or 1.2 per cent of GDP
Five-year cumulative budget measures as a per cent of budget-year GDP
Source: Department of Finance calculations.
8
per cent of GDP
Economic Action Plan 2012
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2003
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2007
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2009
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2010
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2011
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2012
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2014
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2015
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-17
per cent of GDP
Program spending is expected to broadly return to pre-recession levels
Program Expenses-to-GDP Ratio
9
Actual Projection
Fiscal Outlook
Sources: Department of Finance; Statistics Canada.
First launched in Budget 2010, the
Government’s plan to return to balanced
budgets has largely been focused on
spending restraint:
Departmental operating budgets were
frozen for 2 years; planned growth in
defence spending reduced; and,
international assistance capped (Budget
2010).
Final year of the 4-year strategic review
process completed (Budget 2011).
Results of a comprehensive review of
departmental spending (Budget 2012).
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The federal debt-to-GDP ratio will return back to pre-recession levels
Federal Debt-to-GDP Ratio
Source: Department of Finance.
10
per cent of GDP
Actual Projection
Economic Action Plan 2012
For the longer them, Economic Action Plan 2012 ensures the sustainability of the retirement income system
Ratio of Working-Age People to Seniors
11
per cent
Source: 9th Actuarial Report on the Old Age Security Program
Economic Action Plan 2012
Economic Action Plan 2012:
Increases the age of eligibility for OAS and GIS benefits from 65 to 67 beginning in 2023, with full implementation in 2029
Maintains current benefits for Canadians age 54 and over as of March 31, 2012
Adds flexibility – as of July 1st, 2013, individuals who wish to work longer can defer their OAS pension and receive higher benefits upon retirement
4.4
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5.0
2010 2020 2030 2040 2050 2060
Main risks to the Canadian economic outlook are external and tilted to the downside
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Further escalation of the euro area sovereign debt and banking crisis
Direction of U.S. fiscal policy in 2013 and beyond
Key domestic risk – high household debt
Economic Action Plan 2012
Lessons Learned in Managing Fiscal Consolidation
• Flexibility, “intelligence” and adaptability are key
• Requires:
- High societal consensus
- Strong political leadership
- Organizational preparedness for strategic change
- Effective communications
- Integration with the expenditure management and budgeting system to ensure follow-through (announcement, implementation, monitoring)
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Economic Action Plan 2012
Fiscal Consolidation in Canada
June 2012