Following the money should be easy

Posted on April 16, 2015 in Governance Debates – Full Comment
April 15, 2015.   William Robson

Get past its circus-like quality, and the fuss over Senate expenses — Nancy Ruth’s airline breakfast; Mike Duffy’s principal residence — is healthy. Canadians have rising expectations about the stewardship of public money. Insisting that legislators justify their spending the same way auditors look at businesses and not-for-profit organizations makes eminent sense.

While the Senate is making headlines with dollar amounts in the tens, hundreds and thousands, however, Canada’s federal and provincial governments are presenting budgets with dollar amounts in millions and billions. Expectations about stewardship of public money on that level should be just as high. But the gap between the quality of information legislators and voters get and what they need is unnecessarily wide, and the gap between what legislators vote for and what actually happens is enormous.

If we are penny wise and pound foolish, it is partly because senators’ expenses, however lavish their meals, travel and contracts, are on a human scale. What with health care, transfer and interest payments and hundreds of thousands of public-sector workers to pay, the budgets of Ottawa, the provinces and territories total about $650 billion. Numbers that big make many people throw up their hands, assuming it’s all beyond their grasp.

But it should not be. The basic concepts are not the problem. In outline, government budgets are no different from how we manage as individuals, or in businesses and non-profits. Revenue is what you have to work with. Spending is what you use up. If revenue exceeds spending, your net worth goes up; if revenue falls short of spending, your net worth goes down. And if revenue or spending are different from what you expected, your bottom line will be different as well.

Part of the problem is in presentation. Suppose a smart, motivated, but non-expert person — your favourite aunt or uncle — picked up a government budget, wanting to compare projected spending in the upcoming year to actual spending last year. Or picked up that government’s end-of-year results — the public accounts — wanting to compare actual spending to what was budgeted for that year. How easy would that be?

That depends on the government. The federal government and some provinces — New Brunswick, Ontario, Saskatchewan and Alberta as of this year — present the relevant numbers clearly in their budgets and their public accounts. Elsewhere, however, our reader will find different accounting in the two documents, and multiple revenue and spending figures that would stump even an expert.

Worse, the information parliamentarians get when asked to vote spending — the “estimates” — is typically different again. Put your aunt and uncle into a legislator, and they will confront inconsistent accounting, spending that gets netted against revenue and vanishes, no reconciliation of what they are voting with the budget plan. They may be smart and motivated, but the odds against their understanding the results of their vote will be long.

That contributes to a second problem: a sense that governments are out of control — that trying to figure out their finances is pointless because what they say and what they do never match anyway. Indeed, if you compare, as the C.D. Howe Institute recently did, what the federal, provincial and territorial governments actually spent with what they budgeted over the past decade, the cumulative overrun was $48 billion. An amazing amount of money. More than Ottawa spends on transfers to seniors in a year. Far more than it collects in GST. More than British Columbia’s entire budget. Enough to tempt even experts to throw up their hands.

Back in the 1990s, every one of Canada’s senior governments effectively kept two sets of books, with inconsistent numbers in its budget and public accounts. Now, five have cleaned up their act entirely

Just as we can get senators to behave better, though, we can improve our handling of public money on a larger scale as well. Bad though the information in budgets and estimates is today, it was worse in years past. Back in the 1990s, every one of Canada’s senior governments effectively kept two sets of books, with inconsistent numbers in its budget and public accounts. Now, five have cleaned up their act entirely. Two others — British Columbia and Yukon — are close. The number of objections expressed by auditors has fallen dramatically. We are making progress.

The news about spending over-runs also has a bright side. In the first half of the decade, federal, provincial and territorial governments typically spent 3.2 per cent more than they budgeted every year. In the second half of the decade — the more fraught post-crisis environment – the typical overshoot fell to 1.5 percent. That is still too much. But it shows that improvement is possible there too.

So, whether we are dealing with hotel rooms and fancy photographs at one end of the scale, or multibillion-dollar social programs at the other, we should keep our expectations high, and insist on transparency and accountability to match. No reader of a government budget should need help discovering how projected revenue and spending compare to the previous year. No legislator looking at a government’s estimates should be ignorant of how her vote squares, or not, with the budget plan. And no user of a government’s public accounts should struggle to figure out how well, or badly, the results match what the budget promised at the beginning of the year.

Canadians are right to expect good stewardship of public money, whether the amounts are in the tens, thousands, millions or billions. We have the tools. We know they can work. We should use them.

National Post

William Robson is is president of the C.D. Howe Institute and coauthor, with Colin Busby, of By the Numbers: The Fiscal Accountability of Canada’s Senior Governments, 2015.

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