Morneau dropped deficit forecast from fall update

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A government report showing Ottawa faces decades of deficits was kept under wraps for two and half months before it was quietly released online two days before Christmas.

The Globe and Mail has obtained documents showing Finance Minister Bill Morneau was provided with the government's long-term fiscal projections on Oct. 12, as the minister was preparing his fall economic update.

The documents show that finance-ministry officials were preparing to include the information as part of that update, which was released Nov. 1.

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However the long-term forecast – which covers the next 40 years – was ultimately kept out of the update and wasn't made public until Friday, Dec. 23, when it was posted online without a news release. The way the material was released contributed to the fact that it took several more days before its contents were reported in the media during the parliamentary recess.

The government used the Nov. 1 update to release forecasts for the next five years and to make new policy announcements, including an increase in long-term infrastructure spending and support for a Canada Infrastructure Bank.

Releasing the long-term forecast on the same day would have meant taking a communications risk that the government's infrastructure announcements would be overshadowed by media attention on the new deficit forecasts, which showed Ottawa is on track to run deficits until the 2050s.

Daniel Lauzon, a spokesman for Mr. Morneau, said Tuesday that he took "exception" to The Globe's questions about why the long-term forecast was removed from the update. He said that due to the volatility of economic forecasts, the decision was made to release the long-term estimates at the end of the year so as not to "create confusion" by releasing them as part of the update.

"The report is published online for all to see. When deciding the timing of its release, we considered the fact that the long-term ‎projections are based on assumptions that will inevitably evolve," he said in a statement.

The previous time such a report was released occurred in November, 2014, when it was provided as part of the Conservative government's fall fiscal update. The 2014 report showed federal finances were on track for decades of surpluses.

An Oct. 12, 2016, briefing note to Mr. Morneau from his deputy minister, Paul Rochon, points out that nearly two years had passed without an update to the 2014 forecast.

"The department is overdue to publish an updated long-term forecast," states the briefing note, which was obtained by The Globe and Mail under the Access to Information Act. The note was accompanied with a redacted copy of the long-term forecast, which was prepared to appear as an annex to the fall update, as was done in 2014.

While parts of the note and the attached projections report are redacted, the figures that were not blacked out are the same as the figures that were released to the public in December.

In the note, Mr. Rochon advised the minister that the provinces were likely to release their own long-term forecasts.

"It is expected that provincial governments will release a fiscal sustainability report in October in the context of the current health accord negotiations, showcasing perceived federal-provincial fiscal imbalances," states the memo from the deputy minister.

The long-term report showed that while Ottawa is on track to run deficits until the 2050s, the federal debt as a share of Gross Domestic Product would shrink over that same period, from 31.8 per cent this year to 17.3 per cent in 2055-56.

The report cautioned, however, a combination of lower-than-expected productivity growth and spending growth a quarter of a percentage point more a year than currently expected "would be sufficient to put at risk the fiscal sustainability of the federal government."

Conservative finance critic Gérard Deltell said Mr. Morneau should have released the report once it was ready.

"It's a total disgrace," he said. "If you have an important figure in your hands, it's your responsibility to publish it as soon as you can to inform Canadians. … The fact that they published it a few hours before Christmas just shows that Mr. Morneau is playing political games."

Long-term federal fiscal forecasts are relatively new. Forecasts that run even five years out are generally viewed with a heavy dose of skepticism by observers given the challenges of estimating growth and government spending.

The Conservative government was ultimately convinced by arguments from the Parliamentary Budget Officer and the Auditor-General that forecasts for the coming decades provide a helpful guide for understanding how demographic trends will affect public finances, particularly for programs such as elderly benefits.

The finance ministry promised to release such reports "on an annual basis" following recommendations from the Auditor-General in an Oct. 23, 2012, report. The department released its first long-term report that same day, titled "Economic and Fiscal Implications of Canada's Aging Population." Reports followed in the fall, 2013 and 2014. No report was released in 2015, which was an election year.

Mr. Morneau's 2016 budget did not include a long-term fiscal forecast, nor did it set a firm date for returning to balance.

"The government will set a timeline for balancing the budget when growth is forecast to remain on a sustainably higher track," the budget stated.

In response to a question from The Globe in June, a finance ministry spokesperson said the government "intends to publish a long-term sustainability report in the fall." When the figures were not included in the fall update, The Globe inquired again with the department on Nov. 2. The department said the figures would be reported "later in the fall."