Over the course of 20 fiscal years, Canada's federal, provincial and territorial governments routinely overshot their annual budget targets, says a new report from the C.D. Howe Institute.
In Trouble on the Bottom Line: Canada's Governments Must Produce More Reliable Budgets, authors William B.P. Robson and Miles Wu find that since 2000/01, Canada's senior governments have overshot budgeted expenses by a cumulative $119 billion and overshot budgeted revenue by $143 billion. They went into the COVID-19 crisis spending $3,100 more per Canadian, and taxing $3,800 more, than they would have if they had met their past budget commitments.
"On average, Canada's senior governments registered better bottom lines than they budgeted, but the cumulative impact of the overshoots means they are spending more and taxing Canadians more heavily than their budgets indicated," say Robson and Wu about the C.D. Howe Institute's annual comparison of governments' budgets and results.
The authors note that annual revenue and spending overshoots tend to coincide. That would not happen if governments responded to booms and busts with normal stabilization policies. It suggests that governments reacted to accidental or engineered revenue overshoots with in-year spending, or otherwise manipulated their reported numbers to achieve a predetermined bottom line.
Robson and Wu also look at adjustments 'below the line' in their financial reports. These adjustments, which budgets do not anticipate and escape attention from legislators, have tended to be negative in recent years.
The authors warn that, with COVID-19 prompting increases in expenses and debt that will persist for years, two threats loom: 1) greater temptation for governments to manage their bottom lines; and 2) pressure to raise taxes and cut services. "More than ever, legislators and voters should demand that Canada's federal, provincial and territorial governments improve their budgeting processes and their transparency about how well, or badly, they fulfill their budget commitments," they conclude.
William Robson took office as CEO of the C.D. Howe Institute in July 2006, after serving as the Institute's Senior Vice President since 2003 and Director of Research from 2000 to 2003. He has written more than 240 monographs, articles, chapters and books on such subjects as government budgets, pensions, healthcare financing, inflation and currency issues.
Miles Wu is a Research Assistant at the C.D. Howe Institute. In his role, he provides research support, literature review, and analysis for various projects and presentations. Prior to the C.D. Howe Institute, Miles had worked at the Information Technology Association of Canada, Queen's Park and Toronto City Hall in both internship and full-time positions.