Wednesday, July 30, 2008 at 11:09pm | Edit Note | Delete
From Monday’s Globe and Mail
July 28, 2008 at 8:11 AM EDT
Renewed criticism of the federal government’s continuing practice of underestimating annual revenues, particularly where it appears to be a deliberate political strategy, should compel the Conservatives to live up to past promises.
A recent report released by the Certified General Accountants Association of Canada – a thorough look at the federal Finance Department’s habit of stumbling upon multi-billion-dollar surpluses – concludes that the practice, whether planned or unplanned, strengthens an impression that Canadians are over-taxed (despite being a low-to-intermediate tax country). Meanwhile, it creates the perception that the government has money to spend and places it under pressure to spend it in the last third of the fiscal year. Never mind the erosion of the federal government’s credibility.
In 10 of the past 11 years, the federal surplus has exceeded initial budget projections by an average of $8.6-billion. The latest “surprise” surplus, announced by Stephen Harper’s government last fall, looked rather like hypocrisy.
“We promised the Canadian people that we would not hide surpluses, that we would be as transparent and accountable as we could be… and we would avoid the ‘March madness’ that [the Liberals] got into year after year with so-called surprise surpluses,” Jim Flaherty said in 2006, referring to last-minute, politically sensitive spending announced outside the budget.
Yet, with a surplus some $5-billion beyond expectations the next year, the Tories were prey to the same impulse to make end-of-year billion-plus dollar promises of their own. One notable example was $1.5-billion taken from the surplus for new environmental spending in February 2007, a substantial chunk of it for Quebec just ahead of an anticipated election.
As the CGA-Canada report points out, “One can’t help but wonder if surprise surpluses have become strategy… As a tactic, it does have appeal and creates, over time, a norm that permits accelerated debt retirement.” (Like his predecessors, Mr. Flaherty applied a large portion of last year’s surplus to reduce the debt, then running at $467-billion.) But deliberately underestimating tax revenues creates unreasonable expectations among taxpayers about the strength of the economy.
“While all countries face the same problem of ’small misses,’ Canada’s forecasting accuracy is worse than that of other countries,” the report cautions. “This leads to a conclusion that the invisible political pressure to avoid deficit may still play a very important role in shaping surprise surpluses.”
While the current economic slowdown and the result of recent tax cuts suggest any pending unplanned surplus will be smaller than in past years – the government actually ran a deficit of $517-million over the first two months of the current fiscal year – any more surprises are unwelcome. Mr. Harper has appointed a Parliamentary Budget Officer to provide independent analysis of the country’s finances. One hopes this will make a difference.
The goodwill of Canadian taxpayers pleasantly surprised by multi-billion-dollar “unplanned” surpluses may make it easier for governments to put billions toward paying down the public debt. But if the case can be made to taxpayers, then planned surpluses can pay down the public debt just as well as unplanned ones.
