Can the private sector do it?

There was some interesting back and forth through the fall about whether the private sector could fulfill the role of the PBO. I argued no.

But, in the UK, it strikes me that many aspects of what the PBO does in Canada are currently covered very well by something called the Institute for Fiscal Studies. The IFS doesn't do macro forecasting, but they do look at the budget balance on a monthly basis. They also do extensive evaluations of the annual budget, and of particular policies. The IFS is a registered charity, with very diverse funding sources.

We have lots of thinktanks in Canada, and some really interesting and well-done work comes out of them now and again. But, I think even people from our leading thinktanks would agree that none in Canada reaches the combination of academic and policy credibility that has been accumulated by the IFS. Some might come close on particular items, but not with the scale or depth of the IFS.

So, why don't we have an IFS in Canada?

In my view, an important aspect is geography. In London, you have the business, academic, and political centres of the country all accessible by a short tube ride. (Even Oxford and Cambridge are only an hour by express train.) Someone could hold office hours with students in the morning, attend a workshop over lunch at the IFS, then give a presentation to government or business officials in the afternoon--and then be home for dinner. Hard to do in Canada.

By the way, when I visited the IFS for a couple of days in the Fall I heard that the Canadian PBOfficer had been in London the previous week. The Conservatives have proposed a similar institution for the UK should they win the next election expected this year, and people in the UK are interested to hear the Canadian experience. It will be interesting to watch what happens in the UK.

(Speaking of elections in the UK, wouldn't it be cool to announce results with all candidates together in person like they do in the UK? Love those big party ribbons they wear. It would be so fun to watch the daggers emanating from the eyes of the losing candidates.)

So, to sum up, the IFS experience suggests that it might be possible for the private sector to perform many of the roles now allocated to the PBO. However, we might have to geographically shmoosh Ottawa, Toronto, and Montreal together in order to get the required convergence of factors. Moreover, the PBO is clearly doing things now that were not being provided by the private sector pre-PBO, so I don't know why we would expect the Canadian private sector to suddenly change what they do in the absence of the PBO.

What's so good about the CBO?

Anyone watching the US healthcare debates over the last 6 months should have developed a strong appreciation for the Congressional Budget Office. At different points in the summer, the two sides were each on the defensive as the CBO's costing of different initiatives either helped or hurt the case for reform.

What was interesting to me is that I read very little in the way of attacks on the credibility of the CBO during these debates. This NPR article on the credibility of the CBO suggests a lot of "screaming" on both side of the aisle, but in my view it is more whinging than strong criticism--attacking the CBO was not a central part of either party's strategy. Both sides more or less took their lumps when it came to the CBO. And remember here, this is not a polity that is averse to character assassinations and attempted credibility-destruction.

This credibility was born of legislated independence and nurtured by a history of solid research and good leadership. Clearly, the PBO isn't there yet. But I think the CBO is indeed a nice target for what an effective PBO might offer.

But don't take my word for it. Just check out what they do here. There is even a blog. (Can you imagine the reaction of the Library of Parliament and certain Parliamentarians if Kevin Page had a blog? The legislation does not mention a blog! The legislation! Sedition!)

The Swedish Fiscal Policy Council

I was just opening up a forgotten pile of mail on my desk and found the 2009 report of the Swedish Fiscal Policy Council. What's that? Glad you asked.

See here:

The council assesses the extent to which the Government's fiscal-policy objectives are being achieved. These objectives include long-run sustainability, the budget surplus target, the ceiling on central government expenditure and that fiscal policy is consistent with the cyclical situation of the economy. The council also evaluates whether the development of the economy is in line with healthy long-run growth and sustainable high employment. Additional tasks are to examine the clarity of the Government's budget proposals and to review its economic forecasts and the economic models used to generate them. Finally, the Council should try to stimulate public debate on economic policy.

The site also says they do this with an 8 member council, assisted by a secretariat with only 2 employees. That's pretty thin for such an ambitious agenda. But from what I can tell they are doing a great job with what they have.

The Swedes started their Council about the same time as the PBO started up. It's like they're twins! As the Economist said, independent budget offices are a great way to build fiscal credibility for a country's government.

Budget Officer in BC?

An opposition MLA in BC introduced a Private Member's bill (M 201) in the BC legislature on August 31st. Here is what Bruce Ralston said:

This bill amends the Budget Transparency and Accountability Act to create the independent budget officer, an officer of the Legislative Assembly. The independent officer's mandate is to provide objective, timely analysis and updates to the Legislative Assembly about the estimates of government, the state of the province's finances and trends in the B.C. economy, to undertake research regarding the province's finances when requested to do so by certain standing committees and members of the assembly and to provide estimates of the cost of proposals contained in legislation.

The independent budget officer is entitled to a right of access to data necessary for the performance of his or her mandate.

I move that this bill be placed on the orders of the day for second reading at the next sitting after today.

I can't find the text for bill M101 online, but that sounds good to me. Do any other provinces have anything like a PBO?

(Hat tip again to Vaughn Palmer / Vancouver Sun)

The Economist likes Independent Budget Officers

In September, the Economist magazine published an editorial arguing in favour of independent budget officers. They draw a parallel to central banking, which has benefited over the past 20 years from a move toward greater independence.

Here is the core of their argument:

Hence the importance of the other approach: appointing independent budget monitors. Politicians will not (and should not) outsource tax and spending decisions to unelected technocrats, but all countries should have independent bean-counters to pass judgment on their fiscal plans. Even without statutory power, such bodies have an impact. New cost estimates from the CBO, for instance, recently changed the terms of America’s health-care debate. These bodies should not just assess politicians’ plans, but offer simulations of different fiscal paths. Britain’s Tories want to copy the CBO model.

They are right. No politician likes being second guessed, but the greater fiscal credibility that such rules and institutions provide actually increases a finance minister’s room for manoeuvre. It also helps central bankers, by assuaging investors’ fear that bankrupt governments will resort to printing money. Credibility will not magically remove the difficult budget choices that lie ahead. But it is an important place to start.

Hat tip to Vaughn Palmer/Vancouver Sun.

Response in defence of Library of Parliament Committee

In Monday's Hill Times, there was a response to last week's piece by Jean-Marc Tremblay. The article is here, but it is subscription only. The response is from B. Thomas Hall, who is identified as a past clerk to the Library of Parliament Committee.

Mr. Hall disputes many of Mr. Tremblay's claims about the Committee and the OPBO.

It is clear that Mr. Tremblay used some sharp--perhaps overly so--language in his piece last week. This generates the content of much of Mr. Hall's response.

However, the general thrust of Mr. Hall's argument is about the interpretation of the current law and how the PBO should act in order to be in compliance with the current law. I don't have any particular insight about the interpretation of the law, but I do observe that interpretations do seem to differ.

The question that interests Mr. Hall is how the PBO should behave in order to be in compliance with the law. That is an important issue--people should follow laws. No question there.

What interests me, however, is a different question: what should the OPBO look like? My observation having been a consumer of data from budget offices from other countries is that a greater degree of independence seems to be a good thing. I like that they can have a website and a blog and communicate things directly to citizens without the direct oversight of a Parliamentary Committee or the Librarian of Parliament. If that is not possible under the current law, then the current law should be changed.

Independence

One of the important aspects of the current debate about the OPBO is the degree to which it should be independent.

The Netherlands Bureau for Economic Policy Analysis, which is similar in many ways to the OPBO, has an interesting FAQ about independence:

CPB is a research institute that is independent with respect to content, but at the same time is formally part of the central government. This ambiguous position, which we share with the other planning offices, often raises questions.

CPB does not find this position to be constraining. Succeeding Ministers of Economic Affairs have respected and, if necessary, defended CPB's independence, even at times when they could not agree with the conclusions drawn by CPB. Most politicians accept and appreciate CPB's independence. This enables us to work for the Cabinet and for the opposition at the same time. After all, politics takes decisions regarding the chosen policy, whereas CPB - on demand or on its own initiative- seeks to clarify the economic effects of specific policy proposals.

I think the last sentence is key. It is up to our politicians to make the decisions, but they can make better decisions if they have solid numbers on which to base their decisions. And that is what an effective OPBO can do.

About the CBO

The Congressional Budget Office in the United States was established in 1974. Here are some interesting things from its factsheet.

• Funding of USD 44.1 million in Fiscal Year 2009.
• Staffed by 235 people.
• Mission to provide "Objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the federal budget"

In contrast, Canada's OPBO has only a handful of employees and funding of just over $2million per year.

There are surely important differences between the needs of a congressional and parliamentary system, so direct comparisons might not be appropriate. However, the need remains for independent analyses of budget proposals from either the Government or the Opposition side of the House and the OPBO is a great way to do so effectively.