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Management of the Fiscal Framework June 2016 Managing the Fiscal Framework • All about fiscal planning / budgeting • Projecting total revenues, expenses and the budgetary balance of the Government • Setting a fiscal policy rule or objective • Working with the Government to ensure that the fiscal plan is achieved in concert with its other priorities and objectives Will walk you through the steps – in general within context of Budget 2016 2 The Budget • The key annual policy document • Vehicle to implement Government priorities • Sets out economic and fiscal forecast (2-5 years) 3 Managing the Fiscal Framework • Cabinet Retreat – Broad Policy Objectives • Fall Update – Baseline Fiscal Projections • Soliciting Budget Proposals • Budget Decisions and Final Fiscal Projections • Budget Tabled • Spending-Tax Authority • Program Implementation Late Summer Fall- Winter (Oct-Dec) Winter (Jan-Feb) Winter (Feb-Mar) Spring (April-June) 4 Budget Preparation (Summer) • Government reviews existing priorities Election Commitments, SFT, Emerging Pressures Minister of Finance reviews economic and fiscal developments since Budget • Cabinet Retreat Cabinet begins shaping the Budget in light of the economic and political climate, reports on public issues and concerns Provides central agencies and departments with broad direction to guide them with budget preparations 5 Consultation (Fall - Winter) • 5-year Update of Economic and Fiscal Projections Discusses risks associated with economic and fiscal projections Sets framework for consultations with stakeholders • Ministers send Budget letters to Minister of Finance • Public Consultations House of Commons Standing Committee on Finance Minister of Finance public consultations (across country) Consultations conducted by other Ministers Minister of Finance meeting with P/T finance ministers 6 Development and Decision (Winter) • Finance Canada updates its fiscal projections • Private sector survey (economic side) Revenue forecast Expenditure forecast Regular meetings - Prime Minister and Minister of Finance Budget themes, structure, strategies Budget timing Specific measures 7 Development and Decision (Winter) • Consideration of Budget Proposals • Finance 2-pager with recommendations/options/conditions • Authored by Finance Analysts (Tax Policy, EDCF, Social Policy, International Trade and Finance…) • TBS and PCO consulted • Recommendation to Minister of Finance for decision • Prime Minister receives Minister of Finance decision and PCO recommendation • Some subject to Cabinet committee approval • Booked in the Fiscal Framework (source of funds) Approval (Winter to Spring) Budget usually tabled in February or March Budget lock-up and Budget Speech Parliamentary Approval of the Budget and Budget related-legislation: Concurrence on Notices of Ways and Means Motion; administration of tax measures Budget debate - vote on Budget as a package (Vote of Confidence) Approval of legislation implementing the budget, by both House and Senate (Budget Implementation Act(s)) 9 Implementation (Spring) Complete unfinished policy development work and develop Memoranda to Cabinet Present submissions to Treasury Board to access funds Present Main and Supplementary Estimates to Parliament for Approval 10 Budget 2016 Economic and Fiscal Outlook Economic and Fiscal Projections • Economic and Fiscal Forecast • Private Sector Survey 15+ forecasters • Key variables – Nominal GDP, Interest Rates, CPI, employment • Fiscal forecast of key revenue and expenditure streams based on these outlooks • Cost of New Measures Federal Revenues and Expenses Composition of Revenues Other Taxes and Excise Taxes 6% Other Revenues 11% Personal Income Tax 48% Composition of Expenditures Operating Expenses 28% Transfer Payments 13% Public Debt Charges 9% Goods and Services Tax 11% EI Premiums 8% Other Income Taxes 2% Corporate Income Tax 14% Total 2014-15 Revenues: $282.3 billion Major Transfers to Other Levels of Governme nt 23% Major Transfers to Persons 27% Total 2014-15 Expenditures: $280.4 billion Winter 2016 – Economic Conditions Deteriorate Further Canadian Nominal GDP Outlook billions of dollars 2,300 7.3% of GDP ($155 billion) 2,200 June 2014 survey 2,100 February 2016 survey Budget 2016 planning assumption 2,000 1,900 2014 Q1 2015 Q1 2016 Q1 2017 Q1 Budget 2016 – Forecasted Budgetary Balance Budget 2016 Budgetary Balance ($B) Projection February Statement Budget 2016 10 5 0 -5 -2.3 -7.2 -3.1 -$5.4B -10 -18.4 -15.5 -13.9 -11.0 -7.0 -6.7 -15 -$14.3B -8.9 -20 -$17.7B -13.5 -11.0 -25 -$22.8B -30 -$29.4B -$29.0B 20162017 20172018 -35 20152016 Source: Department of Finance. 20182019 20192020 20202021 The Government is committed to reducing the federal debt-to-GDP ratio to a lower level over a five-year period Federal Debt-to-GDP Ratio per cent of GDP 70 Actual Projected 60 50 40 31.2 32.5 32.4 32.1 31.6 30.9 30 20 10 0 19941995 19971998 20002001 20032004 Sources: Department of Finance; Public Accounts of Canada; Statistics Canada. 20062007 20092010 20122013 20152016 20182019 The Government will set a timeline for balancing the budget when growth is forecast to remain on a sustainably higher track Projected Budgetary Balance Projected Federal Debt-to-GDP ratio $ billions per cent of GDP 5 33 Actual Projected Actual 0 Projected Growth 0.3 p.p. lower 32 Budget 2016 -5 -10 February 2016 survey February survey (top quartile) Growth 0.4 p.p. higher Average 2016-2020 Nominal GDP growth of 3.9 per cent -15 -20 31 Average 2016-2020 Nominal GDP growth of 3.9 per cent 30 29 Growth 0.3 p.p. lower Growth 0.4 p.p. higher 28 Budget 2016 -25 27 -30 26 February 2016 survey February survey (top quartile) -35 25 2014- 2015- 2016- 2017- 2018- 2019- 20202015 2016 2017 2018 2019 2020 2021 Note: The February 2016 survey scenario is based on the average private sector economists’ projection for nominal GDP, without any forecast adjustment. The top-end survey scenario is based on the average of the four most optimistic projections for nominal GDP among the economists surveyed. Sources: Department of Finance survey of private sector economists; Department of Finance calculations. 2014- 2015- 2016- 2017- 2018- 2019- 20202015 2016 2017 2018 2019 2020 2021 Sources: Department of Finance survey of private sector economists; Department of Finance calculations. Budget 2016 – Decision Process Budget Implementation Act Expedited Supplementary Estimates A process • Decisions provided to Treasury Board Secretariat • Treasury Board submissions and decisions • Parliamentary Approval through Supplementary Estimates A Moving forward – Budget 2017 and beyond… • The Government will build on this momentum, leading towards the development of its Growth Strategy, Fall Update, and Budget 2017. • Late Summer 2016 • Cabinet retreat and priority setting • Provides officials with broad direction in lead-up to Budget 2017 Fall/Winter 2016 • Update of Economic and Fiscal Projections • Proposals to Cabinet Committees • Launch of Public Consultation Process • Ministerial Letter Exchange Moving forward – Budget 2017 and beyond… • Winter 2017 • Final Private Sector Survey • 2-pager Analysis and Decisions • Budget 2017 release (typically February or March) Spring/Summer 2017 • Treasury Board and other Conditions to be met • Parliamentary Approval - Estimates Management of the Fiscal Framework June 2016