Liberals questioned over $6-billion contingency in deficit forecast

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Finance Minister Bill Morneau is facing accusations of fudging the books over his decision to include $6-billion a year in contingencies as part of his deficit forecast.

One day after announcing that Ottawa is on track for an $18.4-billion deficit next year – even before accounting for new spending – Mr. Morneau faced MPs on the House of Commons finance committee as the final witness for their prebudget hearings.

Conservative and New Democratic MPs questioned the minister and his officials on how they came up with the $6-billion figure. NDP MP Guy Caron accused Mr. Morneau of inflating the projected deficit as a tactic to ease the pressure he faces to deliver on campaign spending promises like enhancing Employment Insurance.

"One can't really help but think that some of it is actually used to modify public opinion to decrease expectations," said Mr. Caron. "It's a tactic that's been used in the past by other Liberal governments."

Mr. Morneau insisted that with persistently low oil prices and an economy that has repeatedly underperformed private-sector forecasts in recent years, it makes sense for the government to use the most pessimistic forecasts as a planning guide.

"I understand your concern," he replied. "We intend on moving forward with those campaign commitments. We want to do so in a way that gives Canadians an understanding of our situation."

Former parliamentary budget officer Kevin Page said Mr. Morneau should have provided a far more detailed explanation as to how he came up with the decision to add $6-billion a year to the size of projected deficits.

"It's a massive forecast adjustment," he said. "This fudge factor is overwhelming."

Contingency funds have long been used as a political tool by finance ministers to suit their needs, usually as a way to give governments some wiggle room to achieve deficit-reduction targets.

The amount is frequently set at $3-billion a year, but it has been both slightly smaller and slightly larger at various points over the years.

The practice reached a peak in the final year of the Paul Martin Liberal government, when the prime minister's 2005 budget included a $7-billion contingency in the outlying year of its forecast. The practice infuriated then-opposition leader Stephen Harper, who said it was a way of hiding billions just to "blow them on year-end bonanzas."

In government, Mr. Harper's budgets used contingencies of varying sizes. Liberals were highly critical of the Conservatives last year for shrinking the size of the contingency in the 2015 budget from $3-billion to $1-billion, an accounting move that single-highhandedly allowed the Conservatives to forecast a pre-election surplus of $1.4-billion.

Then, when the Liberals released their platform costing during the 2015 election campaign, the party did away with the contingency entirely in the first three years of its forecast.

After forming government, Mr. Morneau included a $3-billion annual contingency in his November fiscal update.

Former finance deputy minister Scott Clark said he suspects the larger contingency is a tactic to reduce expectations from the public, but also from Mr. Morneau's own cabinet colleagues who are currently lobbying to have measures included in the March 22 budget.

Mr. Clark said if he was still the deputy minister, he would recommend a large contingency as a way of protecting the health of federal finances.

"I don't know what's going on around the cabinet table but I imagine the pressures on the finance department and the minister are pretty heavy to spend their brains out," he said.

"It doesn't hurt to sort of remind them that this is a pretty bad time to be planning a budget and they might want to be a little more prudent."