Skip to main content

Ottawa’s budget balancing may come with big pension asterisk

For the C.D. Howe Institute, the problem with Ottawa's quest for a balanced budget in 2015 isn't (as most critics charge) the economic damage from pursuing austerity at a time when the economy is struggling. Rather, it's that the budget might be balanced in name only – propped up by unrealistic pension accounting that, sooner or later, taxpayers will have to pay for.

In a meeting with The Globe and Mail's Editorial Board in advance of the release Wednesday of the think tank's annual Shadow Budget report, C.D. Howe president William Robson and associate research director Alexandre Laurin argued in support of Finance Minister Jim Flaherty's balanced-budget goal. But they were highly critical of Ottawa's accounting methods surrounding government-employee pensions and retirement benefits – which, they say, are masking the full costs.

Mr. Robson argued that while Ottawa has gotten better at recognizing and addressing its massive pension and benefits burden, those costs remain "badly understated" in its budgets. A key issue for C.D. Howe is the assumptions the government makes on the returns it can generate from investments used to fund these benefits, which it believes are too aggressive in the extended low-interest-rate environment.

Story continues below advertisement

Indeed, C.D. Howe estimates that if Ottawa adopted a more realistic "fair value" accounting of its pension and benefit funding costs, its annual budget deficits over the past five fiscal years would have been, on average, $13.7-billion higher than what the government actually reported. As returns have improved, in the most recent fiscal year, ended March 31, 2013, the deficit would have been $21.5-billion under C.D. Howe's recommended approach, rather than the $18.9-billion reported by Ottawa.

But the point is not really to argue that Ottawa is being dishonest as it closes in on a balanced budget. The C.D. Howe Institute has long questioned Ottawa's pension accounting. Critics of C.D. Howe's position (and there are plenty, particularly among Ottawa bureaucrats and public-sector unions) insist that the government is in line with typical pension-plan accounting practices, that its assumptions are not too aggressive, and that fair-value accounting is not a good fit for a government, which unlike a private company is in no danger of going out of business.

But Mr. Laurin and Mr. Robson's point is that Ottawa is placing much of the risk for funding the federal government's pension and retirement obligations at the doorstep of the taxpayers. If there's a gap between the assumptions on which retirement benefits are based, and the actual investment returns generated to pay for those guaranteed benefits, it must be paid for – sooner or later – out of tax revenue. Obviously, that should be problematic for a government that wants to balance its budget in the name of protecting taxpayers.

If you buy that taxpayer-risk notion – and as a taxpayer, it's compelling – that forms the basis for an argument that Ottawa should be more conservative in its pension accounting. It also makes a case – a key recommendation from C.D. Howe's Shadow Budget – that the government needs to shift more of the risk to the beneficiaries of the pension and benefits plans, by increasing employees' contributions.

This idea wouldn't make the government particularly popular among members of the federal civil service, who have already been asked to increase their contributions. But with an election approaching in 2015, the broader voting public – the vast majority of whom don't have pensions and retirement benefits nearly as sweet as those employed by Ottawa, and many of whom, to be frank, are resentful of that – might find the share-the-risk argument a compelling one. On the pension issue, good fiscal management might prove good politics, too. Maybe not as exciting as a balanced budget in an election year – but potentially more sustainable.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter