November 21, 2013

Canadian government's "not spending" scandal

Most of the news coming out of Canada right now is about Toronto Mayor Rob Ford, and here in Canada about a senate expenses scandal, but neither is the really big story which is not getting a lot of press anywhere.  The Canadian government has been under-spending it's annual budgets by billions of dollars for a few years now.  Don't you wish that sort of problem existed in the U.S.?

Canada's annual deficit/surplus as a percentage of GDP: click for source.

During the recession of 2008-2009 the government had, under public pressure presented a budget with significant stimulus spending that would have significantly altered Canada's budget deficits for several years.  In fact, the recession had caused the government for the first time in over a decade to go back into deficit spending.  The conservative government, which had submitted the deficit budgets it turns out isn't spending everything it had requested.  In some liberal circles, that's a scandal;

OTTAWA — Canada’s budget watchdog is asking MPs to get to the bottom of why the Harper government is spending billions less than it budgets for, or Parliament authorizes.

Jean-Denis Fr├ęchette, the Parliamentary Budget Officer, says in a report that the government has been unable to, or not spent, about $10 billion — $700 per household on average — that the House of Commons has approved in each of the past three years...

The federal government had expected so-called “lapsed spending” to rise during the roll-out of stimulus budgets following the 2008-09 economic crisis, but that was supposed to start returning to more normal levels starting in the 2012-13 fiscal year. Instead it rose slightly to about $10 billion.

For the three years, lapses have averaged over 11% of the total allotted spending, or about twice the average prior to the recession.
The graph above shows the deficits in percentages.  Looking at the $10 billion per year may seem like small potatoes compared to budget amounts in the U.S. but Canada has one-tenth the population of the United States, so the American equivalent of under-spending would be on the order of $100 billion.  It's a big deal.

Speculation may come about in the news that the government is somehow accumulating a savings to carry forward to get the deficits back to surpluses earlier than otherwise.  The truth is that the conservative government was never warm to the idea of a government stimulus, and in fact the Canadian economy weathered the global recession pretty well, with a fairly modest (even moreso in hindsight) stimulus effort.  Not spending the money is something the government should be proud of having done.  No doubt the media will try to portray it otherwise.

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