Budget that toppled government worth reviewing
The federal budget that was presented on March 22 was, like all budgets, cre- ated by mixing equal parts economics and politics. As it happens, the budget quickly turned into an election platform for the gov- erning Conservatives, as all three opposition parties combined forces to defeat them in the House of Commons on a confidence vote just days after the budget was read. As of this writing, the election campaign was in its early days amid dire warnings of conspiratorial coalition-building.
Though at its heart it is a political document, the federal budget does represent the govern- ment’s single most important policy statement for the entire year. Increasingly, governments in Ottawa have come under attack for includ- ing ever more “non-budgetary” items in budgets in an effort to legislate an entire policy agenda in one fell swoop, instead of allowing the political process to play out issue by issue, all year long, in the House of Commons. There is substance to this complaint, but it is a debate for another column.
Casting aside the political tone of such documents for a moment, it is important to examine the government’s policy agenda as presented in its signature statement, and through the lens of one of the most hotly- contested policy issues of recent years: the fiscal situation of our national government.
Most deficit-era budgets project the fiscal picture as progressively brightening next year and every year thereafter until the budget balance eventually turns from red
to black, usually four to five years down the road. This approach tells the story of a grad- ual return to balance with economic growth doing much of the heavy lifting over a period of time that is politically convenient and pal- atable. It also flies in the face of history and economic reality.
The most recent budget is no different. The deficit will go from $40.5 billion this year to $19.4 billion two years from now. Then, in 2015-16, the federal government will run a modest surplus of some $4.2 billion dollars. A large sum, you may say; but a drop in the ocean of Ottawa’s yearly bill.
Governments, like you and me, are constrained by the inability to predict future events with any certainty. Until this signifi- cant obstacle is overcome, fiscal projections will remain the stuff of heated debate. That’s why they call them “projections” and not “reality.”
The budget of 2007 failed to predict the economic storm on the horizon. The govern- ment of the day rightly took some criticism for this when its opponents were armed with the mighty tool of hindsight. But it can’t be forgotten that many of those same critics failed in an equally spectacular manner to pre- dict the severity of the recession that in 2007 seemed the purview only of naysayers and doomsdayers.
The budget, for all its political spin, is a weighty technical document. This year’s edition, at 392 pages, is actually a much shorter read than its immediate predecessors. But happily, and despite the mountain of data it contains, the budget’s bottom line can be boiled down to a fairly simple calculation: revenues minus expenditures. It really is that simple.
The fiscal picture painted by this year’s federal budget is based on projections that can be described as optimistic on both sides of that equation.
Total budgetary revenues are set to increase from $218.6 bil- lion in 2009-10 to $309.2 billion in 2015-2016. This represents a nominal increase of 41.4 per cent in six years. Such revenue growth has happened before in Ottawa, as recently as the 1990s. However that was a time of almost unprecedented economic growth in this country which is not likely to repeat itself in the near future.
On the other side direct program expenses – the actual things the government does other than writing cheques to people and provinces – are set to remain flat over the same time period, moving from $119.2 bil- lion to $120.5 billion in the next six years. Once inflation and growth are taken into account, this means the federal govern- ment’s expenditure on direct programs will decrease from 7.8 to 5.9 per cent of GDP. This may not seem impressive but represents a significant with- drawal of program spending by Ottawa amounting to almost two per cent of our entire economy over a relatively short period.
The federal government delivers many programs across the country. There is no doubt that some of them represent a dubious value to the taxpayer. But spending reduction on the scale envisaged by this year’s budget will be an enormously complex task for Ottawa, no matter who is in charge. If history is any guide, governments find it much easier to spend money than to cut existing programs. But this is exactly what they will have to do to meet the projections in the 2011 federal budget. Today’s rosy story will be tomorrow’s political battle.
