Skip to main content

Buried in the back corners of last year’s federal budget, and many before that, is a bit of opaque wording that happens to have billions of dollars attached to it.

Two of the sections that break down the fiscal impact of proposed tax and spending measures have this footnote: “Less: provisions for anticipated cabinet decisions not yet made included in previous budgets or updates.”

Clear enough? On the off chance that some further explanation is needed, here it is: That language flags instances in which money has been previously budgeted for programs that had not yet been announced. In essence, the federal bureaucracy judged that cabinet was close enough to endorsing a policy that it was prudent to set aside funds.

Such language is also used in cases of expenses related to matters of national security, commercial sensitivity, contract negotiations and litigation.

In an interview, Parliamentary Budget Officer Yves Giroux said the existence of such language is a step forward for transparency by the federal government. It’s also a technique that has been used by both Conservative and Liberal administrations.

However, Mr. Giroux said the government needs to go further, by separating out the cost of unannounced cabinet decisions from the other kinds of expenses that necessarily demand some level of secrecy.

True enough. But there is a broader question of transparency. In the spring budget, those provisions for anticipated cabinet decisions added up to billions of dollars. In the fiscal costing for “New Opportunities for Canadians,” a broad package of initiatives for recovery from the COVID-19 pandemic, the provisions amounted to $9.1-billion over six years, or just over one-fifth of the gross spending of $46.2-billion allocated.

The budget properly subtracts the provisions from the gross amount to arrive at a net fiscal impact of $37.1-billion. In aggregate, that’s an accurate indication of the new resources that Ottawa has devoted to that set of spending priorities.

But somewhere in the detailed cost estimates above, there is double counting. Somewhere, there is a program that was already budgeted for in a previous fiscal cycle. The question is: Which one? The budget doesn’t say, and the Finance Department would not directly answer that question, either.

There is a similar issue with the section of the budget pertaining to spending for Indigenous communities, in which provisions total $2.2-billion over six years, more than 10 per cent of the gross expenditure of $15.2-billion over that time. Again, that $2.2-billion is effectively counted twice in the detailed estimates.

Which initiative to help out Indigenous communities got brand-new money? No one outside government knows.

In lieu of those specifics, the government is able to leave Canadians with the impression that it is committing billions more in new spending to Indigenous communities, and to economic recovery, than is actually the case.

Taxing questions

A recent Tax and Spend piece on the effects of Ontario’s delayed provincewide assessment sparked lots of questions, including from one online reader who asked why municipalities do not charge fees for services provided rather than levying property taxes.

First, it’s important to note that many municipalities do charge such fees. Water and sewage bills, at least outside of Quebec, have been common for a long time, says Benjamin Dachis, associate vice-president of public affairs at the C.D. Howe Institute, which has extensively studied the intricacies of municipal finance.

More recently, garbage collection has shifted toward a user-pay model in many municipalities. But property taxes still make up a large part of municipal revenue, particularly outside of Ontario. In Ontario, grants from the provincial government for locally provided social services reduce shrink the relative weight of property taxes.

Mr. Dachis suggests that property taxes, if looked at the right way, do function as user fees, in some cases. If a municipality sets aside park land or builds a swimming pool, that makes the surrounding neighbourhood more desirable. Property values rise, and if that increase outpaces those in other parts of the municipality, so do property taxes. In that instance, then, money spent on improving the quality of life results in higher taxes.

Of course, the same isn’t true of more general expenses. Administrative costs for, say, the mayor and council don’t benefit any particular neighbourhood more than others. For jurisdictions with revenue-neutral rules, such as Ontario, an increase in overall property values does not translate into higher taxes. (Although in provinces such as New Brunswick, such an increase would mean a higher tax bill, unless a municipality decided to cut its mill rate.)

So, what about moving to a full-out user-pay model? User fees for police and fire protection services would be clearly ridiculous; imagine the police delivering an invoice after a 911 call. More realistically, the cost of such services could be simply apportioned between property owners. But that would lead to other kinds of inequities: Should a household of nine people pay the same fee as a one-person household?

That illustrates a basic tax maxim: There’s no such thing as a tax that makes everyone happy.

Line Item

Hiring line: Last month, I reported on some preliminary data that indicate that Ottawa’s payroll payments to boost employment, the Canada Recovery Hiring Program, was not getting much traction. You can read that story here. Now, the Parliamentary Budget Officer has issued a costing forecast for the program, concluding that the CRHP will disburse $814-million over two fiscal years – or just over a third of what the federal government projected in its December fiscal update. After subtracting the resulting increase in corporate tax revenue, the hiring subsidy will end up costing a net $704-million, the PBO concludes.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

Sign up for the Tax and Spend newsletter here