New budget cuts were announced: subsidies to universities, government research funds, social assistance, Emploi-Québec, daycare .... The Treasury Board determined the cuts without preoccupying itself with the priorities of its own government, it seems. At the time of the budget speech last November, a booklet was published with the title The Budget at a Glance. It confirmed attainment of a zero deficit for 2013-14, balancing expenditures and revenues at a level of $72.8-billion.
This is correct if we use the lower of the two evaluations of spending and revenue. But if we use the one corresponding to consolidated operations, expenses are $94.2-billion including contingency funds. Since revenues are expected to come in at $95.2-billion, it isn’t equilibrium but rather a surplus of $1-billion that is expected. More precisely, $1-billion $39-million (BP 13-14, p. A 21-22). The March 2013 economic and financial update reduces revenues, but expenditures are reduced even more, so that the expected surplus augments slightly to $1-billion $53-million. (Update 13-14, p. B 29).
In short, because of the methodological fog and the distortions we impose on financial data, we provoked unnecessary crises in public opinion and torpedoed the summit on higher education planned for last March. But, most of all we become aware of how much accounting confusion obscures the efficient functioning of governments and the public debate.
Some years ago, Quebec’s auditor-general asked me to make a presentation at a meeting of Canadian auditors-general. I concluded my talk with roughly these words: Discuss the accounting conventions to be adopted for as long as you wish. But once you’ve decided, leave them in place for a decade. We are making the examination of budget data incomprehensible for most people and dangerous for those who have to make decisions.” I was clearly not heard. The confusion is growing.
Despite complicated things like the stabilization reserve or the Generations Fund, we can’t escape the old rule (another truism) that deficits raise debt and surpluses lower it. Some elements are automatic. A recession will, for example, reduce budgetary revenue. A recovery will increase it. But if the recovery is slower than expected, surpluses will take awhile to reappear. Other elements depend on program organization: If during a recession, public investments were increased, they’ll be reduced with the recovery.
All this is common sense. What is important is that accounts be more or less balanced over long periods of time, which is the case in Quebec over the last 15 years.
Far be it from me, however, to claim that there aren’t savings to be made in government operations. Programs ought to be examined periodically to see if they are effective and if they offer value for money. For example, it is scandalous that for a number of years reports showed that public works in Quebec cost 20 to 25 per cent more than elsewhere but that was nothing was done until finally police were brought in.
Is the policy of maintaining budgetary equilibrium synonymous with inaction? After all, governments are elected to get things done, not just to manage finances. The period after 1998 gives us an answer: profiting from economic growth and the accompanying rise in revenue, the Quebec government introduced, among other new programs, two innovations that cost billions – drug insurance and $5-a-day daycare (now $7 a day). We see that refusing to discuss free university tuition in the name of budget equilibrium, on the basis that it would cost $1-billion, is a flawed argument. One can be against the concept, but let’s find some other arguments.
In other words, let’s end these periodic crises of nerves. There is no financial crisis.
We have to stop scaring people and get rid of this accounting obsession which paralyzes things. We have to face Quebec’s real economic problems head-on: its overly-slow economic growth, the serious deterioration in the foreign-trade balance, the weak productivity of too many of its enterprises, and the lack of professional and technical training. Those are the things that must be tackled!
Jacques Parizeau is a former premier of Quebec and provincial finance minister. This articile was originally published in Le Devoir.