Loose fiscal controls lead to blown budgets: C.D. Howe Institute

Over the last 15 years (from 2002/03 to 2017/18) Canada’s federal, provincial and territorial governments have regularly missed budget spending and revenue targets, with spending overshoots of $69 billion combined.

So finds a report from the C.D. Howe Institute, which also reveals a consistent lack of fiscal accountability by Canada’s senior governments.

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Report authors William B.P. Robson and Farah Omran compare the expenses and revenues projected in the budgets of Canada’s senior governments at the beginning of the years in question with the results they reported in their public accounts after the end of those years.

This comparison highlights persistent spending overshoots and cumulative revenue overrun, adding up to $104 billion—that equals much more tax collected than prefigured in budgets.

“Canadian governments miss their targets in predictable ways: expenses and revenue typically come in above what the budgets promised,” says Robson. “Had they delivered on the past budget commitments, Canadians would now enjoy lower taxes and smaller governments.”

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Expenses

Ottawa’s average overshoot of 0.5% annually is less than the overruns seen in the other 13 governments assessed. Ontario and Nova Scotia come second at 0.7%, followed by Quebec and New Brunswick, which both had average overshoots of 1%.

Saskatchewan and Alberta had the largest—3.4% and 3.9%—among the provinces. For the territories, Yukon and Nunavut had the worst average overshoots of all: 5.5% and 5.7%, respectively.

The Institute’s annual Pinocchio index further details the cumulative spending overshoots.

Revenues

Ontario was the only jurisdiction to undershoot its revenue projections over the 15-year period measured.

Ottawa, Nova Scotia, New Brunswick and PEI had the smallest overshoots: 0.8% or less annually. Not surprisingly, provinces more dependent on natural resource revenues overshot by more: Alberta, Saskatchewan, and Newfoundland and Labrador were among that group.

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Canada’s senior governments have improved their stewardship of public money during the past 15 years, the C.D. Howe report says, but their tendency to overshoot most of the time is a concern.

So, too, is an annual pattern of spending surprises that coincide with revenue surprises, the report says. This suggests governments are spending windfalls and managing their bottom lines.

The authors recommend several steps to improve fiscal controls of public finances at the federal, provincial and territorial level. These include:

• more timely estimates presented in the context of the government’s fiscal plan;
• a stronger role for legislative committees that authorize spending; and
• faster and more frequent publication of actual expense and revenue results.

“Control of public funds in Canada is looser than it should be,” says Omran. “Senior governments should improve the quality of their budget forecasts and their adherence to those forecasts, and legislators and voters should hold them accountable for doing so.”

Read the full report.

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