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Blown Budgets: Canada’s Senior Governments Need Better Fiscal Controls

William Robson () and Farah Omran
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Farah Omran: C.D. Howe Institute

C.D. Howe Institute Commentary, 2018, issue 512

Abstract: In 2017, Canada’s senior governments spent some $782 billion on program expenditures and interest payments, amounting to 36 percent of gross domestic product. Control of public money is fundamental to democratic government, so it is natural to wonder how much of this activity – and the taxes, fees and borrowing that support it – reflects deliberate choices by voters and legislators. Formal accountability exists. Governments typically present budgets before or shortly after the start of the fiscal year, and budget votes are votes of confidence on which governments stand or fall. Legislatures and their committees play a key role in authorizing many specific expenditures. Governments table their public accounts, which present the audited results for actual revenues and expenses, after the end of the fiscal year. But comparing the expenses and revenues projected in the budgets of Canada’s federal, provincial and territorial governments at the beginning of the 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. More significant, they miss their targets in predictable ways: expenses and revenue typically come in above what the budgets promised. Over the past 15 years, senior governments’ cumulative spending overshoot adds up to $69 billion, with the Prairie Provinces and the Territories showing the biggest overruns. Even larger is the cumulative revenue overshoot: $104 billion. Governments in Canada are spending and taxing far more this year than they would have if they had 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 the bottom line. Encouragingly, however, the tendency to overshoot and miss budget targets more generally, and the troubling annual patterns, seem to have become less pronounced over the past 15 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.

Keywords: Fiscal and Tax Policy; Federal Budgets; Government Debt and Deficits; Program Spending and Evaluation; Provincial Taxation and Budgets; Transparency of Public Finances (search for similar items in EconPapers)
JEL-codes: H30 H50 (search for similar items in EconPapers)
Date: 2018
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