Cutting the fiscal fat, finance ministers find lot of baloney

Posted on March 12, 2017 in Governance Debates – Opinion/Commentary – Finance ministers of all political stripes have little leeway because after financing “must have” obligations only a sliver of the fiscal pie remains.
March 12, 2017.   By ROBIN V. SEARS

Chinese history records the anger of early emperors over ministers who wasted the nation’s treasure and failed to collect the taxes imperial ambitions required. In most countries, managing the king’s treasury could be a fatally risky career for finance ministers until only a few centuries ago.

It’s not much more fun for most finance chiefs even now. Your day begins and ends with saying no to colleagues and supplicants, and explaining to the boss why last year’s guesses about this year’s bank balance were so wildly off target.

One top of all that, more blarney is perennially spouted about budgets than in any other arena of politics or government. Every budget maker imprudently proclaims the magical properties of their fiscal wizardry. Every budget critic demands governments should perform an annual loaves and fishes miracle with every budget dollar.

The heaviest artillery in the Canadian media, the lead editorial in this newspaper, just a few days ago demanded that Bill Morneau waste less, raise more and spend more effectively than his record in the past year. One could imagine finding 5,000-year-old Egyptian hieroglyphics on a palace wall thundering the same demand of the pharaoh’s hapless finance minister.

The reality that every finance minister lives with, as the long line of supplicant businesses, charities, provinces and fellow cabinet ministers each plead their exceptional qualification for an extra slice of the budget pie is this: Most of the pie is long gone before anyone can claim the tiniest sliver.

After you deduct from the $290 billion budget the “must-haves,” the funds remaining for the “nice-to-have” are thin. Every budget dollar is precommitted to: debt service (approximately 9 per cent), transfers for health, education etc. (24 per cent), guaranteed spending for Old Age Security and Guaranteed Income Supplement etc. (17 per cent), and salaries and pensions for its own employees (29 per cent).

When all the obligatory spending is sliced from the budget pie, every Canadian finance minister is left with about 20 cents of the budget dollar. Now $60 billion dollars is not trivial, but it is always a small fraction of the money required for the list of eminently desirable projects and programs.

This is not surprising to ordinary Canadians. For most of us, our discretionary spending from a family budget is enough to fund a splash out on deluxe holiday weekend, maybe; but an expensive new car, no. So why do we consistently make such unreasonable demands of our collective budget and its guardians?

There are perhaps three reasons, each less reasonable than the next. First, we expect that the money should be spent on our projects first. If there is nothing left for submarines after a national child-care program; well, too bad.

Second, even those of us who would never run risky levels of debt rarely make the same demands of government, even if we claim to believe in “balanced budgets.” Borrowing enough to fund our treasured programs should always be a priority.

Finally, we “know” that if the government was less incompetent and simply stopped wasting money on stupid things, there would be more than enough to go around.

When the Paul Martin team sat down to try to rein in Canada’s then mushrooming debt and deficit levels, they poured over every program, transfer payment and internal cost. After months of scrubbing they found about $3.5 billion in cuts and trims. About 1.5 per cent of the then total budget and less than 8 per cent of the “discretionary budget.”

Whether you agree with their choices or not, it remains the case that no one has done as much since. So the waste and inefficiency argument as a source of real money was, and always is, more blarney.

One of the reasons the numbers rarely turn out as predicted, is that fiscal projections necessarily make weathermen look reliable. A $10 change in the price of oil — what many experts are predicting for the year ahead — to cite but one of a dozen similar variables, knocks the federal budget up or down by billions of dollars.

Morneau’s budget will be proclaimed as focused, transformative, and prudent by the minister. It will be attacked by critics on the right as proof of Liberals’ “tax and spend” profligacy. On the left, it will be one more proof that you can never trust Liberals not to break their promises to the middle class.

And if you miss it, don’t worry. You can tune in for the same blarney in March next year.
Robin V. Sears, a principal at Earnscliffe Strategy Group and a Broadbent Institute leadership fellow, was an NDP strategist for 20 years.

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