Bank of Canada Governor Stephen Poloz endorsed the government's estimates of how the budget will boost economic growth, insisting he has the independence to challenge the Finance Minister's numbers if necessary.
The Bank of Canada's Monetary Policy Report was highly anticipated because up until Wednesday, Mr. Poloz had declined to include any assumptions about fiscal measures in the forecasts. Even after Finance Minister Bill Morneau released his March 22 budget – which promised to boost growth by 1 per cent in 2017-18 – bank officials said they would wait until the monetary report's release before incorporating the budget's impact. However, when the bank's report was released, the figures repeated the estimates produced by Finance Canada and declared them to be "reasonable."
Avery Shenfeld, CIBC's chief economist, suggested the Governor was in a political bind. "The Bank of Canada had to raise its 2016 growth forecast since the governor's boss, minister Morneau, is out touting the benefits of fiscal stimulus …" he said in a note.
The Office of the Parliamentary Budget Officer, which has a much smaller staff than the Bank of Canada, recently produced its own modelling that challenged the budget's claim that the measures would create or preserve 100,000 jobs. The PBO's modelling arrived at 60,000 jobs and a lower projection for economic growth.
The issue is the hotly debated concept of the multiplier effect, which are estimates of how much additional growth will be created as a result of fiscal decisions related to tax cuts and new spending.
The debate is politically sensitive because the Liberal government is justifying its plans to run deficits totalling $113-billion over five years on the basis that the plan will generate stronger economic growth both in the short and long term.
Mr. Poloz defended his decision to use Finance's numbers.
"The Finance Minister, I'm sorry, is not my boss. The Bank of Canada is a fully independent policy maker," he said, when asked about Mr. Shenfeld's comments. The Governor's mandate comes from cabinet as a whole, not just the Finance Minister.
"I can tell you that, if for some reason, we were in total disagreement with some of the analysis that was in the budget, we would say so in our analysis," Mr. Poloz added. "We would say, 'Well, that's different from ours.' We wouldn't be nasty or belligerent about it. We would just say the reasons why they may differ."
Mr. Shenfeld later said he was being "tongue in cheek" with his comments and added that the Governor provided a reasonable explanation of the bank's approach.
"One can't claim too much false precision on each decimal place in the estimates of the fiscal impacts," he said.