1. GN-PBO Ottawa, Canada June 11, 2015 Kevin Page & Sahir Khan Jean-Luc Pepin Research Chair University of Ottawa An Approach to Budget Analysis for PBOs: Keeping it Simple

2. Outline 1.Budgets – High Level Fiscal Plans 1.How I Read a Budget 1.Looking for Issues : Risk and Materiality 2.Methods and Tools

3. Budgets in Canada – High Level Fiscal Plans  Canadian Budget Cycle – a year long process –Annual cycle with multiple components – policy, government fiscal plan, departmental spending plans and performance documents, appropriation bills, ways and means motions (tax), public accounts, audit Key point -- need to see the big picture and how the components fit together  Canadian Budget – a high level fiscal plan –A number of connected pieces – speech (political strategy); multi year economic and fiscal planning framework; measures with costs; annexes on notice for ways & means (tax) and debt management strategy Key points – focus on numbers and assumptions; do not get lost in the politics of communication

4. How I Read the Budget  Strategic Approach - I use the same approach my wife uses at the food store –In Canada, all the fresh produce (healthy stuff) is on the outside of the food stores and the processed foods are in on the inside As a Budget Officer, I would read budgets from the outside in – from the numbers, to the measures, to the political communications (time permitting on the last one)  First - start with the economic outlook (tables) –Is the economy projected to be bigger or smaller (nominal GDP) –Has the outlook for key program cost drivers changed – real GDP, inflation, unemployment etc Are the economic assumptions reasonable? Does the government have more or less fiscal room than the previous budget?

5. How I Read Budgets  Second – I look at the summary fiscal table that shows changes from the previous budget –How much of the change is due to economic factors and how much is dues to fiscal factors? Do the changes in the status quo outlook look reasonable (impact of revised economic outlook on revenues and spending) –Is this a big budget or little budget (scope and magnitude of measures)? Will the measures have an impact on the economy? This basic table is the key overview table of the budget – it is the shopping list we take to the store and the home budget we discuss with ours spouse at the supper table Do not be fooled by the size of the document – often budgets with lots of text have smaller measures

6. How I Read the Budget  Third – I read the the text around the individual spending and tax measures –I look at budget priorities by the nature/magnitude of measures –I assess the quantity/quality of the information and analysis around the measures Budgets often focus the attention on “new measures”. Sometimes what is not highlighted in the fiscal plan is more important than what is highlighted  Lastly – I look at the annex documents in Canada that relate to tax and debt management in Canada –Detailed tax information on measures is often highlighted in the notice for Ways and Means Motion –The debt management plan will drive the outlook for debt interest charges and reveal information about the government’s risk management strategy

7. Looking for Issues – Risk and Materiality  Much of the PBO’s work agenda will be driven from the release of the Government’s Fiscal Plan  Some of the work can be driven from your assessment of the Budget (proactive) and some of the work can be driven by members of the legislature  My experience –Proactive work was largely related to macroeconomic analysis –Reactive work was largely related to costing of legislation that flowed from the Budget –A risk and materiality lens was helpful when discussing work priorities with MPs. We focused on fiscal risk to the treasury and systemic risk to the legislature (e.g., transparency gaps)

8. Methods and Tools  Authoritative analysis requires good data, methods and tools –Methods and tools will depend on the nature of the budget issues, budget approaches used by the government, and the mandate and budget of the PBO  Two strategic approaches – independent (bottom up) work or due diligence oversight work (tests of reasonableness). Both useful  Focus of the work will be around testing the reasonableness of assumptions (uncertainty, scenarios) and impact analysis (economy, fiscal framework, citizen)  Macroeconomic tools and financial analysis tools should be seen to complement each other

9. Thank-you Jean-Luc Pepin Research Chair University of Ottawa, Canada Faculty of Social Sciences +1 613 562 5800 x3544 www.jlp.uottawa.ca kevin.page@uottawa.ca sahir.khan@uottawa.ca