WASHINGTON– Bank of Canada Governor Stephen Poloz pushed back on Saturday at the suggestion the central bank had accepted economic assumptions from the Department of Finance without doing due diligence about Finance Minister Bill Morneau’s budget.
“It might be worth spending a couple minutes on the question of fiscal multipliers because it is a fairly technical thing, and if you want to understand it better, I’m happy to do it. We didn’t spend enough time on it (on Wednesday),” Poloz told reporters on the sidelines of the International Monetary Fund meeting in Washington.
He explained that the models used by economists to project how much return on investment the economy will get from the government’s infrastructure spending or a tax cut for families will depend on the starting point of the economic cycle.
A bigger boost is expected from direct investment like infrastructure spending, and a smaller one from tax measures because of the uncertainty around consumer spending, Poloz explained.
He also said that fiscal stimulus will have “a bigger oomph” at this point in the economic cycle than monetary policy, because official interest rates are already so low.
Ultimately, however, the central bank and the federal government’s expectations for the multiplier effect of the budget stimulus were the same, within decimal points, he said.
Poloz took exception on Wednesday to comments by a private sector economist that the bank had relied on the Finance Department’s budget numbers rather than crunching its own numbers because Morneau is his boss.
“The Finance Minister, I’m sorry, is not my boss. The Bank of Canada is a fully independent policymaker,” he told a news conference. “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.”