Budget Officer less optimistic than Flaherty's forecast

Canada's budget watchdog has been butting heads with Ottawa about the deficit for two years and now he's taking on the country's leading economists.

Parliamentary Budget Officer Kevin Page says his office's independent analysis projects the economy will grow about half-a-point less than the economists' average used by Ottawa in its budgeting assumptions.

And he says Canada's unemployment rate won't fall below seven per cent, from the current 7.6, until 2016, not 2014 as economists see it.

Page says his office has stopped using the average consensus of private sector economists and is doing its own analysis. And that shows economic expansion slowing to 2.2 per cent in 2012 and 2.3 in 2013.

Finance Minister Jim Flaherty has said the government intends to balance the budget in 2014-15, using a formula that builds in some prudence to economist forecasts.

But Page is still unconvinced. He believes government spending will be greater than Flaherty lets on, and doubts the budget will be balanced even a year later. He estimates Ottawa will add $128 billion to the national debt in the next five years, well above the $93.6 billion Ottawa is projecting.

Tax expenditures scrutinized

In a second report issued today, the Parliamentary Budget Officer raised concerns about the way the Conservative government is increasingly relying on tax incentives instead of national programs to deliver benefits to Canadians.

Page says tax credits for everything from childcare expenses and retirement tax deferrals like RRSPs to public transit usage now account for over $100 billion in spending.

That's one quarter of the total Ottawa spends delivering programs, such as defence and transfers to the provinces for such things as health care and education.

An international comparison of 10 advanced countries shows that only the United Kingdom spends more on tax expenditures as a percentage of gross domestic product.

However, the Department of Finance says expenditures intended to support retirement is responsible for most of the Canadian increase in the last decade, which has gone from 5.7 per cent of GDP to a high of 7.5 per cent.

Page says there needs to be a review of tax expenditures because compared to program spending, tax expenditures receive less formal review by Parliament.

As well, there is less data available by which to evaluate the effectiveness of programs.

Some critics also argue that tax credits compromise the neutrality of the system by rewarding certain kinds of behaviour and segments of society.

However, Page notes that the Organization for Economic Co-operation and Development judges that tax expenditures have some advantages, including lower administrative costs and greater choice for end users.