This year’s Fiscal and Economic Update was seen as a pretty tame affair, with little in the way of substantial new initiatives. For some observers, it suggested the Trudeau government was beginning to see the need for some degree of fiscal restraint, now that it can no longer count on the Bank of Canada to finance the bulk of its borrowing. For others, it showed that the real action awaits the budget, when the government will begin to implement some of the big-ticket promises in its election platform.
For me it simply confirmed how meaningless these rituals have become. Fiscal statements, like budgets, are supposed to be moments of transparency, when the government shares with the public the state of the country’s finances, together with its plans for taxing and spending. They have instead become occasions for the worst sort of opacity, if not outright deceit, leaving Canadians to guess, perhaps with the help of a forensic accountant, what the government is doing with their money.
Consider the update’s projections for program spending. In the 12 months that have elapsed since last year’s Fall Economic Statement, projected spending for fiscal 2022 (the year we are now in) has been revised upward by $54-billion, or 12 per cent: from $437-billion to $491-billion. Twenty years ago $54-billion was nearly half the budget. Now it’s just the margin of error.
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Well, we’re in the middle of a pandemic. Temporary emergency. Inherently unpredictable. Of course their plans are going to change. All right. But next year’s spending is now projected to be $38-billion, or 10 per cent, more than what last year’s update said it would be. For fiscal 2024, it’s up by $31-billion, or 8 per cent. For fiscal 2025, by 8 per cent. Fiscal 2026, 9 per cent. Unless the government is expecting the pandemic to stick around for five years, this represents a permanent increase in annual spending of about 10 per cent, on average. In just the past year.
Well, there was a budget in between. Yes, there was: a big-spending, pre-election budget, putting us on track for the largest five-year spending spree, after adjusting for inflation and population growth, in our history – nearly 25 per cent more than in the first five years of the Trudeau government, the previous record holder. But spending is now to surpass even that torrid pace, by about $10-billion a year. And of course these latest projections are soon to be made obsolete themselves. Budget 2022 is expected to add billions more to each year’s total, putting us on a new, and still higher, spending track.
What is the point of issuing projections for future years, year after year, that always substantially understate the actual amount – projections the government knows are understatements, since it already has plans for additional spending in the works? It is, quite simply, to mislead. The projections in each budget or fall update always show modest increases in spending from year to year, plotted on a gradually ascending curve. But as the whole curve shifts upward every year, these are, I say again, meaningless.
There was never any projection that showed spending would increase as rapidly as it has, a near tripling in the century’s first two decades. You could only find that out after the fact, by stringing together actual spending totals for each year. Example: Budget 2015 projected spending for fiscal 2020, five years out, at $303-billion. Actual figure: $349-billion. Budget 2017 put spending for fiscal 2022 at $329-billion. The actual figure, as we now know, is $491-billion (pending further revision). But it had already been revised to $353-billion even before the pandemic hit.
Indeed, even in-year projections – that is, for the year in which they are made – as often as not turn out to be wildly off. A new report from the C. D. Howe Institute finds governments at all levels routinely overshoot budgeted spending by billions of dollars, usually in response to unanticipated revenue windfalls. As each year’s forecast spending uses last year’s actual spending as a baseline, these “errors” add up: Over the period 2000 to 2020, the authors calculate a cumulative overshoot in federal and provincial spending of $119-billion, $42-billion of it federal.
This is to say nothing of the many other fiscal tricks that governments use to confuse and mislead the public. This government has added some new ones to the list: For example, the decision to reclassify billions of dollars in spending as “net actuarial losses” – unexpected increases in the cost of government employee benefits – as if somehow these did not count. Or take the decision in this year’s update to spend another $10-billion last year – that’s the fiscal year that ended eight months ago – a bit of fiscal time travel that required the Auditor General to reopen the books and sign them a second time.
Well, what of it? Revenues are pouring in, up 17 per cent this year and projected to grow by 5 per cent to 6 per cent per annum after that. The deficit is down to a mere $145-billion, on its way to less than $30-billion in three years. Output and employment have regained their prepandemic highs: GDP this year, the government boasts, will hit $2.48-trillion, “almost exactly what we predicted it would be in the 2018 budget.” So why is spending 44 per cent higher than predicted?
The return to full capacity, remember, was supposed to signal the unwinding of fiscal stimulus – though the government was careful not to say just where these “fiscal guardrails” were. But now the economy has come “roaring back,” and the government has adjusted its argument to accommodate it: it must spend more, even more than before, not because the economy is weak, but because it is strong; not because it needs to, but because it can. The most the government will commit to is to “reduce the debt-to-GDP ratio” from its current peak “over the medium term” – which requires only that the debt grow no faster than the economy.
I say “commit” but it’s no sort of commitment at all, is it – any more than the government’s previous fiscal commitments (a balanced budget in four years, etc.) were. There’s no reason to attach any significance whatever to government debt projections, not only because they depend on government economic projections, but even more because they depend on government spending projections. They’re projections, not promises, fond hopes at best, to be revised when needed and discarded when not.
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Andrew Coyne