To: The new Parliamentary Budget Officer

From: Stephen Tapp.
RE: Your new job

Let me first congratulate you on your appointment as Parliamentary Budget Officer. To state the obvious, while you have something of a blank slate in this job, the Parliamentary Budget Office (PBO) does not. Your predecessor Kevin Page’s high profile in the media and the often controversial body of work the office produced in its first term has set expectations among parliamentarians, the media and Canadians for whoever occupies the position.

Your appointment gives you an opportunity to firmly establish the long-term viability of this important office. But you must move quickly to build on the things that have worked so far, fix the ones that haven’t and consider adopting new approaches to reveal untapped potential going forward. In order for you to do this, two fundamental questions have to be addressed: Where can the PBO add value to support Parliament? And where should its efforts be focused going forward?

One key adjustment would be to have the office operate with a little more fear than in the first term, but just a little more. The PBO’s existential threat has now passed, so a reflexive fight-or-flight response is not needed. Mr. Page was without question a fearless leader. He called things as he saw them and was not afraid to fight public battles with the government on its most important files. This approach was essential to build the foundations of a new office in difficult circumstances and to establish its independence. In this pursuit, as with any other start-up, risk taking and doing things differently are the order of the day.

Your job, however, is quite different — largely because of the work that was done before you arrived. Success in the second term will require overseeing the smooth transition from a young office into a more established organization. On occasion, this will require more restraint and a heightened awareness of the risks and the potential fallout from controversial choices.

Over the next five years, you won’t make everyone happy with your work, nor should you try to. But by providing Parliament with authoritative and relevant analysis, presented in a nonpartisan way, you may help dial down the controversy that has thus far enveloped the office.

Focus on what you control: the content of the work and your public communications. Ultimately, after the reports are released, you can’t determine how other people will use them — whether it be politicians misrepresenting them for partisan purposes or the media sensationalizing them. With your personal credibility established, Parliament and Canadians will ultimately benefit from the office’s essential work.

The PBO was created to provide independent analysis to Parliament in order to give it the analytical tools to operate on a more level playing field with the executive. Its mandate consists of four areas of study: the nation’s finances; Canadian economic trends; government estimates; and costing programs. Each of these choices tries to address particular shortcomings of our parliamentary system.

There were long-standing concerns about the credibility of the federal government’s budget forecasts. Specifically, there was a widely held belief that forecasts were too heavily influenced by political considerations; for example, that anticipated surpluses were understated to increase the political benefit of better-than-expected performance at the end of the fiscal year, and that forecasts were presented in a way that was not transparent to the public. Here, the job of the PBO is not to be more prescient than the government, as it is notoriously difficult to consistently get forward-looking forecasts ”right.” Instead, one rationale for the office is that having two independent fiscal forecasts performed in isolation (that is, by the PBO and the government) can establish a range of reasonableness for the state of the government’s books and thereby prevent the government from intentionally misleading the public; in addition, it can help expose and examine the assumptions underlying these forecasts.

Second, the office was charged with monitoring economic trends, which is essential to properly assess the government’s budgetary situation. Third, it was tasked with helping MPs navigate the arcane accounting measures in budget documents to better understand what they are voting on and allow them to better scrutinize government spending.

Finally, the PBO was intended to be forward-looking and help parliamentarians analyze the cost of future spending under consideration — for example, for new fighter jets. This role differs from that of the Office of the Auditor General (OAG), which typically audits money that has already been spent. Instead, the PBO’s job is to look ahead and perform independent due diligence before money is spent, which can help avoid boondoggles and improve spending decisions.

These four areas together represent a large and challenging mandate for a small office with limited resources (an annual budget of less than $3 million and a staff of only 15 full-time employees).

Tight resources make it essential that the PBO leverage outside expertise and establish good working relationships, making connections behind the scenes and keeping in regular contact with the government’s gatekeepers in the central agencies (Finance Canada, the Privy Council Office and the Treasury Board) as well as with the deputy ministers of major departments (National Defence and Industry Canada, for costing initiatives; Statistics Canada, for various data needs; and the Canada Revenue Agency and Finance Canada’s Tax Policy Branch, for detailed tax data).

These relationships will not be made (or mended) overnight. But your overarching goal should be to try to get information flowing, in both directions, between the PBO and the government. This includes data, of course, but also means alerting people to the release of reports that may cause political fallout.

Not making meaningful progress on the exchange of information — an issue that earlier this year escalated to a federal court battle — would represent the largest threat to the long-term viability of the office. Indeed, half of the office’s core mandate is difficult if not impossible to carry out without access to timely and detailed government data that are not publicly available.

The unfortunate reality is that unless compelled to do so, government departments, staffed by many risk-averse bureaucrats who are sensitive to their political masters, will release only information they want in the public domain. As the saying goes, a dog will not retrieve a stick with which it will be beaten. But a better institutional relationship could create conditions for the quiet exchange of mutually beneficial information, at the senior and the working levels. Such improved relations will come only when the government trusts that the information it provides to the PBO will be used with some predictability.

The PBO does not have the long history of cooperation from which the OAG benefits in its interactions with the government. Typically, the OAG provides advance copies of its reports to departments, which gives those departments the opportunity to fix factual errors, respond in writing in the final document and prepare their media talking points in advance. This does not compromise the quality of the OAG’s work or its integrity. The PBO should follow a similar approach. This would help move its working relationship with government away from the current ”bad equilibrium,” where neither side shares information with the other, toward a more positive place.

This leads to the touchy but unavoidable topic of the partisan environment that you inhabit. For your own sanity, you should accept that it is impossible to meet the diverse and often contradictory expectations of the many groups who use your reports, particularly those of the opposition parties and the government.

But there are pragmatic steps you can take to lessen the public controversies that highlighted the PBO’s first term. You should adopt a convention of communicating with the public only after the release of a major report. A media blackout period in the week before major public announcements — a strategy successfully used by the Bank of Canada for its interest rate decisions — and also during election periods would help counter any perception of partisanship in such a highly charged political environment.

An open-door media strategy had merit while the office was in its infancy: it was important to raise the profile by engaging with the press gallery and offering background for articles — indeed, media pressure helped defend the office when significant budget cuts were threatened. At this stage of the game, however, its brand recognition has been established and the media and the public are well aware of the office’s work.

There are several downsides to excessive media coverage. The media focus is often not so much on the substance of the reports as it is on generating conflict between the PBO and the government. This can often hinder your ability to communicate the main messages of the reports, and it also disrupts those important institutional and personal relationships. Indeed, it’s wise to acknowledge that what was viewed by many as an undisciplined communications strategy during the first term has burned some bridges in Ottawa. Your job, therefore, is to start rebuilding those bridges.

With your limited budget and broad mandate, you need to pick your spots wisely. Carve out clear priorities and niches for the office within the four broad areas and clearly communicate these priorities to the staff and key stakeholders. In practice, this means focusing on substantive issues that matter to Parliament and will have staying power beyond the current news cycle.

One way to identify these spots would be to establish an independent advisory panel made up of experts, academics and former practitioners, who can help identify topics that merit study.

Another approach is to play a greater role as an economic translator for Canadian policy-makers. This would involve providing analysis to help compare federal and provincial budget documents for fiscal policy and also fiscal and monetary policy at the national level — where all of these important policy choices rely on different, and often contradictory, economic assumptions for the future.

You might also work more closely with parliamentary committees — as was anticipated in the original legislation creating the PBO, which explicitly names three committees (the House and Senate finance committees and the Public Accounts Committee). The limited interaction between the PBO and the Senate thus far has been a missed opportunity, for despite its current problems, the Senate can be a good venue to discuss longer-term policy issues in a less partisan environment.

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Looking back, the operations to date of the PBO reveal several important lessons. For instance, there is a huge interest on the part of parliamentarians, the media and everyday Canadians in forward-looking analysis that is independent of the government on how tax dollars are being, and may be, spent.

Also, it is fair to say that the PBO has demonstrated its value, and that a small office with a limited budget can punch above its weight by hiring well, working hard and avoiding the bureaucracy’s usual excessive aversion to risk. The proof of the PBO`s value is clear from analysis that it first published, where the government provided no comparable public analysis, such as these:

  • Probabilistic budgeting (or so-called fan-chart forecasts), which not only provide the most likely future outcome for the economy and budget balances but also illustrate the considerable uncertainty around these forecasts
  • Fiscal sustainability analysis, which assesses whether the government’s books are sustainable over the long term
  • Cyclically adjusted budget balance estimates, which help control for the fiscal impacts of economic fluctuations and are especially relevant in recessions, as they provide a clearer picture of the government’s current underlying budgetary position
  • Cost estimates, such as for large proposals like defence procurements (buying new fighter jets) and multidepartment activities (military engagement in Afghanistan), as well as private members’ bills on proposed tax breaks for individuals and businesses

Two further changes would help solidify the PBO’s viability going forward.

First, penalties should be established in legislation for noncompliance with reasonable requests for information from the PBO to government departments. This could include monetary fines and/or requiring a public explanation, from the minister and deputy minister, for the refusal to comply with a request.

Second, the appointment process demonstrates the need for more openness and transparency when appointing the leaders of our important economic institutions, especially those who are expected to operate independently of the government (including the governor of the Bank of Canada). There should be much broader parliamentary and outside expert involvement and far less secrecy in such appointments. In the case of the parliamentary budget officer, there is an undeniable conflict of interest when the prime minister effectively appoints the person who is responsible for commenting on and critiquing budgets, estimates and costings.

The evolution of the PBO has shown that Ottawa’s established culture of turf guarding is difficult to overcome. No one should be surprised at the bumpy ride for this or any other new institution that tries to establish itself, particularly when the work deals with politically sensitive topics. But the PBO has already proved it has an important role to play in Canada’s finances. It now needs to build the institutional relationships that will help entrench that role.