Government members of the House of Commons finance committee challenged forecasts by Parliamentary Budget Officer Kevin Page that spending cuts and restraint announced in last month's federal budget will result in slower growth and the loss of about 100,000 jobs.
"I don't want to be critical," said Conservative MP Dave Van Kesteren as the committee met Thursday. "But there's an air of pessimism" to Page's report that many other economists don't share, he said.
Van Kesteren pointed out that the Parliamentary Budget Office (PBO) projects that real GDP growth (after factoring out inflation), will slow to 1.9 per cent in 2012 and 1.6 per cent in 2013 — below forecasts from the Bank of Canada and many private sector economists.
The PBO forecast "doesn't seem balanced," Conservative MP Brian Jean added. But Page said the PBO believes that the restraint and spending reductions will be a larger drag on GDP growth than private sector economists have factored in. He also cited the prospect of a more sluggish U.S. recovery.
Shelly Glover, the parliamentary secretary to the minister of finance, called the 100,000 job-loss figure "hypothetical."
After doing some due diligence on the government's announced figures, the PBO forecast that the federal treasury will have a surplus of $2.4 billion by the 2015-16 fiscal year, agreeing with Finance Minister Jim Flaherty that the deficit will be history by then. Page also estimated there's a 35 per cent chance that the federal government could have a balanced budget a year earlier.
But he said that belt-tightening will come at a cost — lost jobs and less robust growth. "Most economists agree if you take money out of the economy, there will be some drag," he told members of the committee.
Page forecast that the weakness in growth will push up the unemployment rate from its current 7.2 per cent to 7.9 per cent in 2013.
The PBO report says the fiscal measures outlined in the March budget will reduce economic growth by 0.3 per cent this year, rising to 0.88 per cent by 2014.
"The PBO expects that restraint and reductions in government spending on programs in Canada will act as a drag on economic growth and job creation, pushing the economy further away from its potential GDP and delaying the economic recovery," the report says.
In terms of jobs, the PBO estimates that the budget measures will result in the loss of 18,000 jobs this year. That figure rises to 108,000 jobs by 2015 as spending reductions and operating expense freezes fully take hold.
The federal budget included savings of $5.2 billion a year by 2015, along with 19,200 federal public sector job cuts over three years.