Too many provinces spend money recklessly
A recent report by the Parliamentary Budget Officer (PBO) suggests that the federal government will see sizable surpluses in the decades ahead, and that the value of these surpluses will be approximately the same as the shortfall faced by provincial governments. This coincidence could lead some to assume that the federal government could simply transfer its “extra” money to provincial governments, allowing the latter to avoid raising taxes. But provincial governments shouldn’t pop the champagne corks just yet.
It should be noted that the PBO report projects government revenues and expenditures 70 years into the future. Such long-term projections are extremely difficult to make with accuracy. Just ask yourself: when was the last time someone predicted a financial outcome 70 years into the future and got it right?
Perfecting a long-range projection for federal and provincial governments is obviously difficult, as the process involves predicting what will happen with interest rates, inflation, population changes, life expectancy, economic growth, exchange rates, productivity, unemployment rates and numerous other variables. Slight changes to any one of these variables could have a tremendous impact on long-term projections.
It should be noted that the PBO’s projection for provincial and municipal debt in 2060 (as a percentage of GDP) changed by 43 per cent between its 2014 and 2015 reports. That’s a swing of more than $500 billion or so in just one year. Imagine what could happen over a 70-year period.
Another reason we shouldn’t celebrate the numbers just yet is the reality that Canadians have largely rewarded fiscally irresponsible provincial governments over the past decade at the ballot box. What if that trend continues?
Consider the Ontario and Manitoba governments. Both spent wildly and racked up immense debt loads, yet both were re-elected with majority governments. Moody’s, an international company that rates the risk involved with lending governments money, recently downgraded the credit ratings of both provinces. And they aren’t alone.
B.C. and Saskatchewan have benefited from pretty good financial leadership over the past decade, but most other provincial governments have been racking up large amounts of debt. If taxpayers continue to vote for fiscally irresponsible governments, the projections in the Parliamentary Budget Officer’s report will likely take a turn for the worse.
Finally, although the PBO’s projection is encouraging, other reports haven’t been nearly as optimistic. A 2011 report by the MacDonald Laurier Institute calculated a long-term financial problem that was more than 50 per cent worse than the PBO’s projection that year.
Instead of focusing on transferring the federal government’s projected surplus to provincial governments, we should be trying to understand why so many provincial governments “need” more money in the first place.
It’s true that provincial governments deliver health care, the government program that will bear the brunt of the costs incurred by an aging population in the years ahead. But at the same time, too many provincial governments have been behaving recklessly with the money we currently provide them.
The Manitoba government, for example, started building a football stadium without knowing the final cost, design or how it would be paid for; there are more financial scandals in Ontario than you can shake a stick at; and hospitals in Nova Scotia and Newfoundland have been losing millions through their ownership of Tim Hortons franchises.
While the federal government has made some difficult decisions — such as pushing back the Old Age Security benefit — too many provincial governments have been spending money willy-nilly. Bailing them out with the federal government’s projected surplus would not only reward bad behaviour, it would enable further reckless spending. After all, a bigger cheque from Ottawa does not guarantee provincial governments would straighten out their financial affairs.
Colin Craig works for the Manning Centre in Calgary and is the author of The Government Wears Prada
This column was published by the National Post on August 6, 2015