Tired government can’t break spending habit

Commentary, Taxation, Graham Lane

If you hoped for a balanced budget or a serious break on your taxes in the March 6 budget, you were disappointed. As to the budget itself, the government’s increasing reliance on Crown corporations to pay its bills, along with its methods of reporting and accounting, provide but an illusion of increased expenditure control.

There comes a time in every government’s tenure when the regime becomes tired. A recent poll found Premier Greg Selinger has the lowest rating of provincial premiers now that Kathy Dunderdale has fallen on her sword over Newfoundland and Labrador’s high-cost hydroelectric misadventure, the Muskrat Falls hydro dam.

This government came to power in 1999 when the federal government had returned to balanced budgets and started to increase spending. The then-new NDP government stumbled into extraordinarily good political fortune — rapidly rising federal transfer payments. Naturally, it embarked on a huge spending spree.

The NDP years have been very good years for anyone attached to the provincial government purse. And regardless of how investment markets make out, the pensions of these lucky souls are guaranteed. So no one should be surprised that provincial government spending between 1999 and 2012 increased by an astonishing 86 per cent.

Despite its federal-transfer-payment bonanza, with transfers peaking at almost 37 per cent of the 2010 provincial budget, and a tax regime that vacuumed up as much of consumers’ disposable income as possible, the NDP government still spent beyond available revenues. Between 2000 and 2009, it stayed in the black only by counting the surpluses of Manitoba Public Insurance, Manitoba Hydro and the Workers Compensation Board, which can’t be grabbed. Since then, it has run up debt of about $2.5 billion despite counting in Crown corporation surpluses.

While it has become obvious that the government uses its captive Crowns to boost its own position by increasing their levies and having them spend to meet the government’s objectives, there is yet another far more complicated reason that actual spending, aided by new debt, was able to rise so much faster than the rest of the economy. I speak of how government expenditures are recorded for accounting purposes.

Firstly, generally accepted accounting principles (GAAP) allow governments to amortize new “investments” in infrastructure over the expected service lives of roads, buildings, etc. In short, government can spend without having its infrastructure disbursements recorded as a cost of the year of disbursement.

An example might help. Say, the Selinger government spends $1.5 billion on infrastructure in its 2014-15 fiscal year. If it does, that $1.5 billion will be recorded as an expense over the expected life of the services. So if the average service life is, say, 30 years, all that would be charged against 2014-15 accounts would be $50 million, the other $1.45 billion to go against future governments’ accounts over the following 29 years. Thus, the NDP government would be able to borrow and expend that $1.5 billion, with very little of that massive expenditure hitting its annual accounts for 2014-15.

Another financial-reporting change also greases the spending-increase wheels. I refer to budgets represented in the form of summary accounts.

Summary accounts allow the government to include in its reported annual accounts and budgets the surpluses of Crown corporations, universities and other “government enterprises.” The advantage to government of including surpluses of agencies from which government cannot draw is that those restricted surpluses can mask huge deficits in accounts the government does control. Finally, the accounting practices employed by the government and its agencies include deferring hundreds of millions of dollars of intangible assets while not recognizing the full unfunded liabilities of their pension plans.

Unfortunately, the electorate does not understand much of the intricacies of accounting for the expenditure of public bodies. This is because the details are so technical and complicated in nature. While openness, transparency and accountability are the buzz words of government, in practice, government doesn’t make much of an effort to explain how their actions and plans are reflected in their books, nor how their actions will restrict future flexibility.

Last week’s budget featured a notorious milestone — Manitoba’s debt eclipsed the $30-billion mark. According to the Canadian Taxpayers Federation, the debt is increasing by $6.78 million per day, driving up interest costs. What will happen as debt and rates rise?

Hopefully, someday we will have a government that will live up to its promises to be open and keep spending under control. Government should not overwhelm the capacity of the broader economy to grow with debt, high taxes and ever-increasing fees.