IFSD Fiscal Credibility Assessment Liberal Party of Canada Platform 2021

IFSD finds that the Liberal Party Platform 2021 merits an overall rating of ‘good,’ with ratings of ‘good’ across the three assessment principles (realistic economic and fiscal assumptions, responsible fiscal management, and transparency).

Note: The Office of the Parliamentary Budget Officer’s (PBO) cost estimation is expected to be undertaken on the most significant and complex measures in the platform. IFSD’s score may be revised if PBO’s costing on the most significant measures is not presented prior to the end of the campaign.

Summary

The Liberal Party of Canada released its 2021 platform, “Forward. For Everyone.” on September 1, 2021. The platform includes a variety of measures clustered into six themes: fighting COVID-19, housing, health care, economic resilience, climate/green future, and reconciliation.

The Institute of Fiscal Studies and Democracy (IFSD) assesses the fiscal credibility of election platforms of the major parties according to three principles:

1) Use of realistic and credible economic and fiscal projections;
2) Responsible fiscal management;
3) Transparency.

The principles and scoring criteria are detailed in IFSD’s platform assessment framework, originally developed ahead of the 2019 federal election.

These assessments are designed to test for coherence between policy proposals and fiscal and economic plans, as well as the realism of assumptions.  Platforms are political documents and are expected to provide reliable and realistic proposals, making them different than budgets or government documents that have different requirements for accuracy, realism, and transparency.   

IFSD finds that the Liberal Party Platform merits an overall “good” rating, attributed to its economic and fiscal planning assumptions, consideration of risk, and feasibility of the implementation of its measures (in fiscal and economic terms).  The overall score is 15.5/18 across the three principles.

Using the Office of the Parliamentary Budget Officer’s (PBO) baseline economic and fiscal forecasts, the Liberal Party Platform articulates economic challenges around two policy priorities: 1) the need to address the public health crisis to facilitate the opening of the economy; 2) the need to build back better to address resiliency, sustainability, and equity.

To address the policy priorities, the Liberal Party Platform proposes several new spending measures, at a cost of approximately $78B over five years, with proposals to raise $25B in additional revenues.  Together, with a $15B provision for unexpected risks, the plan generates a fiscal deficit of $32B in 2025-26, with a declining debt-to-GDP ratio.  Despite the increase to the deficit, the fiscal plan remains sustainable over the long-term.

While there is no explicit discussion of long-term fiscal and economic risks in the platform, there are tacit provisions (e.g. the $15B forecast adjustment to address unforeseen risks, the fiscal rule of declining debt-to-GDP), as well as a proposed strategic policy review to improve the alignment of government expenditures to priorities, that implicitly guide fiscal and economic plans. 

The implementation of most proposed measures is expected to be straightforward.  Information in the platform is sufficient to consider potential impacts of measures on Canadians, and differences with the status quo and proposals from other parties.

There are two risks that merit consideration.  First, the revenue generating proposal to close the tax gap, will require better articulation as it is both new and a significant contributor to projected revenues.  Second, while the climate change strategy includes funding for economic transition, additional fiscal pressures in this policy commitment are likely.

1.1 Platform uses the latest PBO baseline economic and fiscal forecasts.

Liberal Party Platform score: 2/2

  • The platform uses the Office of the Parliamentary Budget Officer’s (PBO) baseline economic and fiscal forecasts.

1.2 Platform articulates economic challenges.

Liberal Party Platform score: 1.5/2

  •  The Liberal Party Platform articulates economic challenges around two policy priorities: 1) the need to address the public health crisis to facilitate the opening of the economy; 2) the need to build back better to address resiliency, sustainability, and equity.
  • Fundamental economic challenges such as low productivity growth and competitiveness are not explicitly addressed in the platform

1.3 Platform articulates fiscal challenges.

Liberal Party Platform score: 1/2

  • The Liberal Party Platform makes the case that the federal government went into and will emerge from the pandemic in a strong fiscal position.  The position is substantiated by a AAA credit rating, and a relatively low debt-to-GDP ratio (among G7 economies).
  • The large increase in federal deficits were deemed necessary to support households and businesses during the lockdown and are expected to mitigate long-term economic scarring.
  • There is no discussion of longer-term fiscal risks that could jeopardize fiscal sustainability in the platform.  However, the planning framework does incorporate a $15B forecast adjustment over the next three years to address risks.

2.1 Platform commitments are consistent with a defendable medium-term fiscal strategy and framework.

Liberal Party Platform Score: 1.5/2

  • The Liberal Party Platform’s proposed approach to fiscal management is based on three principles: 1) a budget constraint fiscal rule (declining debt-to-GDP ratio; a declining annual budgetary deficit); 2) readiness to address further pandemic-related economic and health challenges; 3) a commitment to undertake a strategic policy review of government programs to improve allocative efficiency (i.e., alignment of spending to priorities) of government spending.
  • The platform proposes $78 billion in new spending and anticipates generating an additional $25 billion in revenues over the next five years.  Together, with a $15 billion provision for unexpected risks, the proposed expenditures and expected revenues would generate a fiscal deficit of $32 billion, or 1.1 per cent of GDP, in 2025-26 ($7 billion higher than the PBO’s baseline forecast). 
  • The debt-to-GDP ratio is projected to decline slightly every year, remaining below Budget 2021's ratio.
  • From a fiscal perspective, measures to increase revenues have a relatively low risk in terms of revenue return, with exception to the tax gap measure which has a higher risk (and the platform’s highest dependence for revenue generation).

2.2 Platform’s commitments maintain long-term fiscal sustainability.

  • The Liberal Party Platform has an implicit (not explicit) commitment to fiscal sustainability. 
  • Recent analysis by IFSD and the PBO indicate that federal finances are sustainable in the long run, with fiscal room of about 0.8% of GDP.
  • The declining budgetary deficit and debt-to-GDP ratio would ensure that long-term fiscal sustainability is maintained.
  • Extrapolating the Liberal Party Platform’s revenue and spending commitments over the long-term (using current assumptions), the fiscal structure remains sustainable, meaning that the debt-to GDP ratio would not rise.  

2.3 The fiscal planning framework contains adequate provisions for unforeseen events and/or forecasting errors.

Liberal Party Platform Score:  2/2

  • The Liberal Party Platform allocates a $15B forecast adjustment for risk provision over the first three years, for unforeseen events.  This represents approximately, one third of the value of the proposed new measures.

3.1 Platform provides economic and fiscal outlooks for five years (2021-26) with details on key indicators, which incorporate the proposed policy measures.

Liberal Party Platform score: 2/2

  • The proposed measures are presented with associated costs and expected impacts for substantive revenue and expenditure commitments.
  • The economic context is presented through the lens of the COVID-19 pandemic including on-going risks, with associated fiscal prudence and a plan for recovery. 
  • The net economic impact of the proposed policy measures in the platform would be relatively small, given the size of the economy, with negligible feedback effects from these measures on the Liberal Party Platform’s fiscal plans.
  • The platform provides qualitative information on how the proposed measures would impact different demographics.

3.2 Platform provides sufficient detail on its proposed policy measures

Liberal Party Platform score: 2/2

  • The platform provides sufficient detail on the nature of proposed measures, including their goals and their expected impacts on Canadians. 
  • There is sufficient information to allow voters to consider potential differences with the status quo and proposals from other parties.
  • The PBO’s cost estimation is expected to be undertaken on the most significant and complex measures with full utilization of allocated resources.  [Note: This score may be revised downward if PBO costing on the most significant measures is not presented prior to the end of the campaign].

3.3 Platform provides a clear implementation plan for key policy measures

Liberal Party Platform score: 1.5/2

  • The Liberal Party Platform spending measures, in general, are relatively straightforward to implement and do not appear to pose significant downside fiscal risk.  
  • Plans to work through both established and new organizational entities such as the First Nations Infrastructure Institute, Canada Advanced Research Projects Agency, and the Council of Economic Advisors, suggest some commitment to evidence-based policy implementation.
  • Most measures do not appear to require major new program development, complex machinery changes or the (re)negotiating of federal-provincial agreements.
  • Many measures are up-to allocations or transfers that do not have significant fiscal risk to implementation.
  • On the revenue side, closing the tax gap, will need to be better articulated as it is both new and a significant contributor to projected revenues.
  • While the climate change strategy includes funding for economic transition, it is likely that there will be additional fiscal pressures in this policy commitment.