Big Spenders: Canada’s Senior Governments Have a Bad Budget Habit

Abstract

In 2018, Canada’s senior governments raised and spent some $810 billion on program expenditures and interest payments. They provided defence and police services, delivered or paid for health and education, and employed thousands of people. This activity – and the taxes, fees and borrowing that support it – should reflect the preferences of Canadians and their elected representatives. Formal accountability exists. Governments typically present budgets to legislatures around the start of the fiscal year, and budget votes are votes of confidence on which governments stand or fall. Legislatures vote on estimates that authorize spending in particular areas. Governments table their public accounts, which present the audited results for actual revenues and expenses, after the end of the fiscal year. Our review of budget projections versus actual results since 2000, however, reveals that actual accountability – effective control of public money through legislatures – leaves much to be desired. Comparing the expenses and revenues projected in the budgets of Canada’s federal, provincial and territorial governments at the beginning of each year with the results reported in their public accounts after the end of the year reveals that governments routinely miss their budget targets by economically meaningful amounts, and that these misses are far from random. Year-end expenses and revenues typically come in above what governments promised in their budgets. Over the 18 fiscal years since 2000/01, Canada’s senior governments overshot their expense targets by $91 billion. By now, that cumulative overshoot means that they are spending $2,500 more per Canadian than they would have if they had hit their annual spending targets. More startling is the cumulative revenue overshoot over this period: $142 billion. They are raising nearly $4,000 per Canadian more than they would have if they had hit their annual revenue targets. In short, Canada’s senior governments are spending more, and taxing Canadians more heavily, than they would be if they delivered on their budget commitments. Comparing the annual patterns of overshoots and undershoots over time raises a further concern. Rather than overshoots of expenses coinciding with undershoots of revenue, or vice versa, as would happen if government finances were responding to economic cycles, overshoots on either side of the ledger tend to coincide – which suggests that governments are spending “windfalls” and/or managing their bottom lines. Encouragingly, the tendency to overshoot and miss budget targets more generally, and the troubling annual patterns, seem to have become less pronounced over the past 18 years. Several steps, including estimates that are more timely and 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 results, could further improve the record. Canada’s 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.