The House

David Dodge on why the fiscal monitor doesn't matter

The former Bank of Canada governor tells The House why he doesn't put much stock in monthly economic numbers, and why he thinks now is the time to invest more money in infrastructure.
Former Governor of the Bank of Canada David Dodge says that the quarterly numbers, especially at start of the year, don't tell you much of anything, and that he learned not to rely on those numbers as an indicator of where you're going over the course of the year. 0:53

Fiscal numbers released Friday by the Department of Finance painted a rosier picture of the Canadian economy, but the former governor of the Bank of Canada cautioned against putting too much stock in the monthly outlook.

"The fiscal numbers, especially at the start of the year, don't tell you much of anything," David Dodge said in an interview on CBC Radio's The House.

"I learned not to rely on those numbers very much at all as an indicator of where you're going over the course of the whole year."

In the monthly Fiscal Monitor, Ottawa revealed that government revenues came in at $24.3 billion in June, a surplus of $1.1 billion more than what the government spent. 

Dodge said growth in the Canadian economy is slower than he expected.

"I think we've seen enough of the numbers of the first half to say that yeah, we've had no growth, we've probably shrunk in the first half of this year, and the outlook for the second half is a little better but certainly not as good as I could have hoped for a year ago," he said. 

Dodge weighed in on the election debate over infrastructure, saying that the current economic climate makes this the ideal time to invest in roads, public transit, affordable housing and green infrastructure projects.

Earlier this week, the Liberals announced they would spend $125 billion on infrastructure over 10 years — nearly double what the Conservatives have committed. Their plan accounts for three years of consecutive deficits before returning to balance in the 2019-2020 fiscal year.

Both the Conservatives and the NDP have promised balanced budgets immediately.

"What it means is that on a cash basis in the short run, governments that borrow to do that are going to go into debt, just as a private corporation [does]," Dodge said, but added running a deficit to pay for infrastructure isn't necessarily a bad idea.

"[Deficits] are bad at some points in time, they are very good in other points in time," he said.

"At a time when there's a lot of slack in the economy, it's absolutely appropriate for the government to be spending more than they are taking in, to support the economy and because it's a very good time to get things done. When conditions are more buoyant, governments really ought to be running big surpluses, leaning against that inflationary wind."

"Borrowing at these incredibly low interest rates for 30 years to finance this long-lived investment is actually a wonderful thing to be doing," he said.

"At the moment, right across the country we have relatively slow demand for the folks that are needed to build the infrastructure, so the costs to put the infrastructure in place a bit lower than they have been. It's a good time to do it — what we know we need to do."

He also suggested that user charges could be one way to help pay for infrastructure.

"I would argue for user chargers as an important source for government revenues...roads is a good example, that it's actually appropriate to toll those roads to defray the cost of that over a period of time," Dodge said.

Pension reform 'incredibly important' as workforce evolves

Dodge, who was recently appointed chair of the nominating council for the Board of Directors for the Ontario Retirement Pension Plan, also touched on why he supports the controversial provincial pension plan that's shown up on the campaign trail.

"The structure of work is changing so dramatically that many, many people aren't going to have a job with a company for a period of time and be able to build up savings in a company plan," he said.

"The most difficult thing for people when they get into their 70s is, how do you manage your money so that given the ups and downs in the market, it will last over the rest of your life?"

Dodge said Ontario's plan is a "second-best decision" compared to reform of the Canada Pension Plan, but is "a step along the way."

He had strong words for Conservative Leader Stephen Harper, who has said the ORPP would amount to "an enormous tax increase."

"I don't really understand the argument the Prime Minister makes that this is a tax," Dodge said. "It's not a tax. It's a contribution to a pension."

"He's got the system backwards. He's the one who wants to impose the tax on future generations because he's not willing to provide a vehicle for people to save for themselves."


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