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Finance Minister Jim Flaherty’s 2013 budget gave notice that the federal government will crack down on investment products using manoeuvres that boost returns by minimizing taxes.

Adrian Wyld/The Canadian Press

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To balance the budget, Jim Flaherty is counting on numbers that have failed him time and time again.

The Conservative government's plan to bridge the gap between spending and revenue assumes the economy will pick up significantly next year, bringing new cash into Ottawa's coffers.

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Nominal GDP – which is essentially a measure of Gross Domestic Product growth plus inflation – is seen as the most reliable predictor of government revenues.

The finance minister's 2013 budget states that nominal GDP will rise from 3.3 per cent in 2013, to 4.7 per cent in both 2014 and 2015.

But recent history shows these budget projections often don't come true, raising new questions about the less-than-transparent process by which they are produced.

For instance, that 3.3 per cent Nominal GDP estimate for 2013? Twelve months ago, the 2012 budget said nominal GDP for 2013 would be 4.4 per cent. The March 2011 budget predicted nominal GDP for 2013 would hit 4.9 per cent. It seems like good times are always just around the corner.

Obviously the last few years have been volatile. But recent events in Cyprus show economic volatility continues.

So where do these budget numbers come from? Since the mid-1990s, Finance has based its growth numbers on an average forecast from about 13 private sector economists. Prior to that, the department used to make these projections on their own.

Bringing in the economists at least twice a year for budgets and fall fiscal updates shields the government from accusations that it is playing with the numbers.

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But Peter DeVries, who used to manage fiscal forecasts at Finance Canada, says the current process has many problems.

Among his concerns, he says the thoroughness of effort from the 13 sources that lead to the average varies a great deal. He praises the work of the Conference Board and the University of Toronto, but says most others do not provide such comprehensive analysis.

Further, Mr. DeVries said the process is too secretive. The public is never told what Finance does with the average. For instance, assumptions around growth in corporate tax revenue versus personal tax revenue can impact how Ottawa translates growth numbers into revenue estimates.

"When you start looking at who is in the best position to do a forecast, I would say hands down it's the department of finance," said Mr. DeVries, who along with former Finance deputy minister Scott Clark regularly produces critical analysis of federal spending reports and has become a source of irritation for Mr. Flaherty.

As for the finance minister, he stands by the current system.

"Finance does do its own work, the department does, and gives me their own view but we do rely on the private sector economists," he said in an interview with the Globe and Mail on Friday before he left for a post-budget trip to Hong Kong and Thailand.

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He said the economists missed the 2008 recession, but noted that most economists tend to miss major shocks to the global economy.

"And it's not just them sending me pieces of paper," he said. "I meet with them and I ask them questions and we have long discussions about this, as do the officials in the Department of Finance."

Growth numbers won't just impact whether or not Ottawa's books are balanced by 2015. Stronger growth could also dictate whether Ottawa and the provinces move later this year to boost the Canada Pension Plan over time.

"I think the key here is the level of economic growth," he said, when asked for an update on CPP talks with the provinces. "I think it's fair to say that a number of the finance ministers across Canada, including me, do not want to impose any more burden on employers or employees in terms of Canada Pension Plan payments until we have clear solid economic growth. So we do have economic growth now. It's modest. The finance ministers plan to meet again mid-year and we'll have another discussion about it and we'll see where we are economically then."

Bill Curry covers finance from The Globe's Ottawa bureau.

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