Conservative Fiscal Plan

by Kevin Milligan

Comments on Conservative platform costing
October 9, 2015
Professor Kevin Milligan, Vancouver School of Economics
University of British Columbia

Motivation and Disclosure

Economists from the Conservative campaign team asked me a few days ago if I could take a look at their platform costing. I was not involved in the development of the Conservative platform at any step before this request, although in the past few years I have spoken with Conservative economists a few times on policy matters. My full disclosure is here. I endorse no party and no platform.

Speaking for myself, I would prefer the Parliamentary Budget Officer be mandated with providing common forecasts and platform costing for all parties during elections, as happens in some other countries. In the absence of such a mandate, voters may be left to assess parties’ claims without objective guidance on the numbers being presented. In the interests of helping to fill that void, I agreed to take a look at the CPC numbers. I did the same for the Liberal Party a few weeks ago here. The NDP had three respected and capable outside economists (Fortin, MacEwen, and Osberg) review their numbers. I do not intend to arrogate to myself some kind of unique gate-keeper role, and encourage others to look through the Conservative numbers with care.

Overall Assessment

The Conservative fiscal plan uses transparent and prudent costing strategies; budget forecasts are achievable with firm expense control.

Forecasting Framework

In my view, fiscal forecasts should be based on the latest available information. Since the April 2015 budget, we have an updated growth forecast from the Bank of Canada, the fiscal consequences of which were estimated by the Parliamentary Budget Officer. In the past few weeks, still more information has arrived, in the form of an upgraded baseline (from the Annual Financial Report) for 2014-15 and positive initial GDP numbers for July. For my taste, the July PBO numbers represent the most recent credible fiscal forecast. The Conservative platform has chosen to use the April 2015 budget numbers as the baseline. However, The budget under the Conservative plan would be balanced in every year even using the PBO numbers. To achieve this outcome, though, firm attention must be paid to managing expenditures.

Overall Costing Strategy

Most platform promises in the Conservative plan are for specific spending amounts on initiatives, meaning little or no modeling was necessary. A handful of items did require more detailed attention. For some (such as the Home Renovation Tax Credit), previous experience with a similar tax credit was used as the starting point for the costing. For others requiring more difficult assumptions, estimates were requested from the Library of Parliament, through an MP. Finally, some items were costed using the Statistics Canada SPSD/M model.

Conservative staff walked me through each line item and described to me the costing strategy. I learned that, where warranted, take-up percentages were estimated and behavioural responses to tax changes were considered. Reference to external data and the Library of Parliament for particularly difficult items added a great deal of credibility to the costing, in my view.

Overall, I left the conversation satisfied that the costing strategies easily met the standard I expect for public policy analysis.

One-Year Operating Freeze

The Conservatives propose to extend an operating spending freeze to the 2016-17 fiscal year. Given higher salary and benefit costs, maintaining a spending freeze will require further reductions and efficiencies be found in government operations. Whether ths fiscal policy is a wise course of action in the current economic environment is a decision for voters to make. I can comment on the credibility of this commitment.

Many governments fail to adhere to announced spending freezes. However, the Conservative government since 2010 has achieved their target of frozen spending. This gives their announced spending freeze for 2016-17 a strong measure of credibility, in my opinion.