{"id":3383,"date":"2018-04-03T09:13:02","date_gmt":"2018-04-03T13:13:02","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1568370"},"modified":"2018-04-03T09:13:02","modified_gmt":"2018-04-03T13:13:02","slug":"jack-mintz-three-sneaky-tricks-hide-the-ugly-truth-about-government-budgets","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/04\/03\/jack-mintz-three-sneaky-tricks-hide-the-ugly-truth-about-government-budgets\/","title":{"rendered":"Jack Mintz: Three sneaky tricks hide the ugly truth about government budgets"},"content":{"rendered":"

With several elections looming in the coming year, all the budget making we\u2019ve seen in recent weeks is more about politics than sound economics. Politicians are scrambling to pick off voters with various bribes. As the federal and most provincial governments relentlessly increase our debt, they have no time to worry about the inevitable reckoning that will come when their budget plans are blown out of the water by a recession.<\/p>\n

Experts will properly evaluate budgets in terms of their impact on the economy. But economists\u2019 views have little to do with political budgeting. Politicians budget using three golden rules.<\/p>\n

Rule #1:<\/em> Hide the deficit as much as possible<\/em><\/h3>\n

Politicians will push deficits off the balance sheet as far as they can bend the rules to do it. Case in point: Ontario cutting $25 billion in today\u2019s hydro costs by stashing $45 billion of future interest and debt repayments in Ontario Power Generation\u2019s books.<\/p>\n

Other governments play similar tricks. They\u2019ve generally stopped counting capital expenditures as spending to make deficits look smaller (they might itemize capital depreciation costs, but those are typically much smaller). As the accompanying table shows, while Quebec and B.C. have declared a budget \u201csurplus,\u201d their debt is actually rising. (Capital budgets are theoretically sound for businesses, where investment can increase future profits. But plenty of public projects simply don\u2019t contribute to growth, and politicians will often reframe obvious social spending \u2014 like hockey rinks and low-income housing \u2014 as capital spending.)<\/p>\n

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As the table shows, the official budgets of the federal government and four largest provinces total $32.5 billion according to the \u201cofficial\u201d deficit. However, if we calculate deficits as the change in net financial debt \u2014 including capital debt financing \u2014 the deficit becomes $49.4 billion. More than 50 per cent higher.<\/p>\n

But even deficit calculations using net debt are measured improperly. They still don\u2019t account for future liabilities associated with pension funding, the future growth in costs for health and supports for the rising number of seniors, or the coming drop in tax revenue as the population ages and the workforce shrinks. Politicians will always avoid providing a full accounting of liabilities. We should be demanding budgeting laws that make them do it.<\/p>\n

Rule #2: Find a path to balance by hoping for the best<\/em><\/h3>\n

Alberta politicians love to show how the budget will eventually balance itself just as soon as oil prices are much higher than they are right now. Premier Rachel Notley\u2019s 2018 budget does that just as much as past PC budgets from Ed Stelmach\u2019s and Don Getty\u2019s governments.<\/p>\n

Meanwhile, last week\u2019s Ontario budget \u2014 which substantially increases debt financing in 2018\u201319 by $11.8 billion and projects ongoing deficits until at least 2024\u201325 \u2014 assumes there won\u2019t be a single recession in Ontario over the next six years (despite it having been 10 years now since the last one). With Ontario\u2019s net debt at 37.1 per cent of GDP \u2014 on top of federal debt at 30.1 per cent of GDP in 2018\u201319 \u2014 Ontario taxpayers are perilously exposed to a potential economic shock. Quebec is still paying for past sins that led to it previously reaching the second-highest debt-to-GDP ratio (after Newfoundland) at 47 per cent, now down to 43 per cent.<\/p>\n

Now the federal government no longer has a goal to balance the budget, promising instead to ensure that debt does not rise faster than GDP. The federal Liberals are joining their Ontario cousins in desperately crossing their fingers that no recession will show up and shred their revenue projections.<\/p>\n

You can tell how much all of these plans are built on the fragile foundation of hope by how nearly every spending program is labeled as a supposedly wise \u201cinvestment\u201d in the future. But you won\u2019t find a shred of actual evidence that such investments increase growth. Ontario says it\u2019s \u201cinvesting\u201d over $12 billion more in health care, child care, seniors\u2019 support and subsidies. Taxpayers should be able to sue politicians for misleading advertising.<\/p>\n