Liberals opt for the Conservatives’ opaque tack with budget update
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Barrie McKenna
OTTAWA — The Globe and Mail
Published Friday, Nov. 20, 2015
A mere seven months ago, the federal government was looking at a bright future of ever-expanding budget surpluses.
No longer – thanks to a worsening global economic outlook, the unexpectedly prolonged oil price slump and a bit of accounting spin.
Not only is the surplus gone, Ottawa will spend the next four years in the red, according to the new Liberal government’s more sobering assessment of the books, contained in a fiscal update released Friday by the Finance Department.
The $1.4-billion surplus predicted by the Conservatives for the current fiscal year: poof, gone. It’s now a $3-billion hole. The same goes for next year’s $1.7-billion surplus. It’s now a nearly $4-billion shortfall, and so on. And that’s before tallying up the cost of the Liberals’ numerous election promises, which include roughly $5-billion a year worth of additional infrastructure spending.
Just as the old government massaged the presentation of its financial condition to demonstrate what a remarkable economic steward it was, the new government is resetting the baseline to give itself maximum political flexibility as it looks to its first budget in 2016.
“We’ve given a starting point for Canadians,” Finance Minister Bill Morneau told reporters in Ottawa.
Maybe so. But it isn’t a promising beginning for a government that ran on a platform of openness and transparency in government.
The Liberal government’s new starting point is starkly different from the old starting point – and not just because the economic outlook has worsened.
So, were the Conservatives too optimistic about the state of government finances as they prepared for an election they wanted to be all about their economic record?
Mr. Morneau refused to take the bait, preferring to stick with the government’s “sunny ways” mantra.
“I think you’ve heard us through the course of the campaign try to find a way to be positive and to deliver to Canadians a sense of change in how we’re going to comport ourselves politically,” he said. “I’d really rather not opine on how [the Conservative government] got those numbers [in the April budget].”
Of course, the last budget was partly a work of fiction. To show surplus, the Conservatives used a series of accounting manoeuvres, including shrinking the size of a contingency for unforeseen events by $2-billion a year, putting a rosy spin on future oil prices, booking savings from planned changes to civil service sick-pay rules and keeping Employment Insurance premiums higher than necessary to meet payouts.
The fiscal update, released Friday, reinstates the contingency reserve by “adjusting downward” how fast economists expect the economy to grow. In essence, the Finance Department is discounting the consensus of private-sector forecasts so that it won’t be taken by surprise if oil prices don’t bounce back or if the global economy worsens.
In 2016-17, for example, $3-billion out of the nearly $7-billion swing from a Conservative surplus to a Liberal deficit is due to this “adjustment,” according to the fiscal update. In the current fiscal year, roughly 20 per cent of swing is due to the adjustment rather than the more negative forecasts.
This may well be the prudent thing to do. It may even present a more accurate picture of the government’s finances in a world of economic uncertainties. And it’s been a long-standing government practice, or at least it was until the April budget.
But how would the average Canadian know?
The same Finance Department that put out the April budget also produced Friday’s update.
Mr. Morneau insisted that the reinstatement of an economic cushion to deal with the unexpected is “not a political choice.”
“It’s a decision that we made together because … we have an economy that is weaker than before,” he said, speaking in French. “It’s prudent to have a level of [economic growth] for planning that is lower than before.”
The pattern set by previous governments does not inspire confidence. Increasingly, budgets have become political manifestos, rather than unfiltered portrayals of financial conditions. For several years, the Conservative even removed the word “budget” from the annual document, before reinstating it in 2015.
Predicting much larger deficits is politically astute. It allows the Liberals to show they inherited a much worse situation than anticipated. It also gives them wiggle room to backtrack on their promises, if necessary, but also to claim ownership for improving financial conditions if the economy perks up.
But it’s not yet clear they’re being any more transparent than the Conservatives.