CANADIANS DESERVE A “REAL BUDGET"
Budgets are becoming less and less important as policy documents but does anyone really care or does it really matter: certainly not for the Harper government?
Finance Minister Joe Oliver did a 180-degree flip on January 16th. After much confusion about the impact of the dramatic fall in oil prices, Mr. Oliver announced that the budget would be delayed until after March 31, perhaps to April or even May or maybe even until after the election. There is no legal or constitutional requirement to table a budget.
His justification for the delay was that uncertainty on the future of oil prices made it difficult to plan his budget. This flimsy excuse is of course nonsense. When planning a budget, uncertainty is the norm, not the exception. This has been the case for decades.
What Mr. Oliver and the Prime Minister Harper really want is time to figure out what they should do to save their precious and dubious reputation as sound fiscal managers.
Despite not knowing the future of oil prices (most oil experts believe they will likely go to $40 a barrel in 2015), Mr. Oliver and the Prime Minister are both emphatic, that the government will still have a surplus in 2015-16 without new spending cuts. This begs the obvious question that if they are so certain, why delay the budget?
Minister Kenney says the government may have to cut more spending to meet its deficit elimination target and that the $3 billion contingency reserve will not be used. A day later, an anonymous senior official says Mr. Kenney doesn’t know what he is talking about. The junior Minister of Finance also says the same thing; the contingency reserve is at play and the government will have a surplus no matter what. With the dramatic drop in oil prices, the contingency reserve is long gone already.
Talk about mixed messages and confusion.
The government has been planning for some time to make the 2015 budget the most important budget for the Harper government since the election in 2011. The deficit would be eliminated in 2015-16 confirming the government’s reputation as sound fiscal managers.
The Prime Minister thought everything was going as planned, when he announced last October, several measures promised in the 2011 Conservative election platform. Mr. Oliver had told him not to worry about the recent decline in oil prices. The budget would be in surplus and everything would be just great. In the 2015 budget, the Prime Minister would be able to fulfill his remaining 2011 political commitments.
Then everything changed.
The 2015 budget will still be the Harper government’s most important budget but for completely different reasons than expected in October. The 2015 budget will still determine the outcome of the election, but not the way the Harper government wanted it to. This budget will be about whether the government can credibly convince Canadians that they are the sound fiscal and economic managers they have claimed to be for the past four years.
The Prime Minister is already claiming that Canadians should trust him to lead the country through the difficult times ahead. It won’t be easy to convince Canadians of this. If the government were such really good economic and fiscal managers, then why are they so confused about what to do now?
The Prime Minister has never liked budgets. Harper never saw them as a means to articulate a vision of the economy and country. He saw them primarily as communication documents and as mechanism for the government to table enormous budget bills that had nothing to do with the budget, but allowed the government to bypass Parliamentary scrutiny of important legislation.
This was not the primary purpose of budgets prior to 2006. Previous governments, both Liberal and Conservative, saw the annual federal budget as the most important policy and political document of the government. The budget set out the government’s fiscal, tax, industrial, social, developmental, international and defense policy objectives and the policy initiatives the government intended to take to achieve them. Budgets were seen as visionary documents where governments would articulate the direction they intended to take the country.
This is no longer the case today. Since 2006, major policy decisions have been made outside the budget, with no discussion or debate. For example, the change in the Canada Health Transfer escalator was made at a federal/provincial finance Ministers’ meeting in December 2011; the change in age eligibility for Old Age Security benefits was made by the Prime Minister in Davos Switzerland; the introduction of the Family Tax Cut was made by the Prime Minister in Vaughan Ontario in October 2014, among others.
But the Harper government has done more than that to diminish the importance of budgets and the authority of Parliament. Prior to the 2007 Budget, governments needed to table a Borrowing Authority Bill if incremental borrowing was required. Parliament demanded that the Borrowing Authority Bill be accompanied by a budget in order to provide a proper economic and fiscal context to justify the need for the incremental borrowing.
However, in the 2007 budget, the Harper government eliminated the need for a Borrowing Authority Bill. Now the government can obtain incremental borrowing through an Order-in-Council without tabling a budget or obtaining Parliamentary approval.
Prior to 2006, the Main Estimates were primarily based on an up to date economic and fiscal forecast, as provided in the budget. Given that the Main Estimates have to be tabled in Parliament before March 1st., this meant that the budget had to be tabled before the end of February.
However, since coming to office in 2006, six of the nine budgets tabled by the Harper government have been after March 1st. As a result, the Main Estimates tabled in Parliament did not reflect the budget’s economic and fiscal projections, nor include the policy initiatives proposed in those budgets.
The result is that for years, Parliament has been asked to approve spending that was already out of date. For the Conservative government, a budget wasn’t needed in determining departmental spending and assisting Parliament in fulfilling it most important responsibility in overseeing government spending.
A great deal has changed since last November. Oil prices have plummeted; the International Monetary fund has once again cut its forecast for global economic growth; the Bank of Canada has dramatically cut its growth forecast for Canada and signalled its concern with a completely unexpected cut in the bank rate.
In a report released on Monday the TD bank released a new economic forecast showing growth of only 2.0% in 2015 down from 2.3% in their December forecast. TD is also now forecasting nominal GDP growth of only 1.1% in 2015 considerably less than the almost 4% growth forecast by the government last November. Such a large reduction in nominal income growth would have a major downward impact on government revenues in 2015-16. Underlying the new TD forecast is an average oil price of price of $47 a barrel, compared to an assumption of $68 last December.
It’s this kind of economic outlook that is making Canadians very anxious about their economic futures, and quire rightly so.
If there was ever a time that Canadians needed a “real budget”, this is it.
A “real budget” would provide an honest and realistic assessment of the economic and fiscal prospects of the economy. A “real budget “ would put aside optics and ideology and undertake a review the government’s fiscal policy and ask how it could be adjusted to strengthen economic growth and job creation, while maintaining a sustainable fiscal structure over the medium term.
The Harper government is unlikely to present a “real budget”. Instead it will continue to make budget decisions based on “optics” while turning itself into a pretzel to show a balanced budget in 2015-16.