Free money for everyone when the Finance Minister makes a mistake! I’m referring of course to the government’s proposal to give a third of “unanticipated“ future federal budget surpluses back to taxpayers. Whoever dreamed up this scheme deserves a Nobel prize – but for marketing, not economics. Perhaps next we will be treated to the scratch-and-win tax return.
Before we get sucked into these games, it’s worth remembering that budget surpluses are no surprise windfalls. The problem is that the government notoriously low-balls its surplus forecast – with the exception of last year when it played a new game: paying future expenses now to fritter the surplus away.
So the government is really proposing to give Canadians money if it continues to get its surplus forecast wrong! We should be nervous about the idea of rewarding taxpayers when the government makes mistakes ascertaining its financial position.
Since the democratic process requires that we trust the reliability of the government’s financial disclosures, wouldn’t it make sense to fix this problem? What kind of democratic debate can we have when Canadians do not have an accurate assessment of our finances?
The Finance Minister even appointed a noted authority – Tim O’Neill, former chief economist at the Bank of Montreal -- to tell us how to fix the problem. And the O’Neill Report exposed what most of us know already: that the government runs high surpluses because it adds lots of padding. O’Neill has a nice name for the padding: he calls it “implicit prudence.” But it still amounts to either low-balling revenues or highballing expenses.
O’Neill even identified the root of the problem: the government has become obsessed with staying in surplus under almost every conceivable circumstance. This obliges the government’s forecasters to build in “implicit prudence” six ways to Sunday. We wouldn’t have persistent upside surpluses if forecasters were shielded from politically-motivated pressure to incorporate so much padding into their forecasts.
This latest scheme to divvy up surpluses – and filter some of them into a tax cut – is precisely the wrong way to handle this problem. Now taxpayers will become contestants in the forecasting foul-up sweepstakes. The more they screw-up, the more we win!
This scheme makes Canadians complicit with the government’s forecasting games. By giving us a tiny slice of the surplus pot, they create an incentive for us to tolerate – even celebrate -- these forecasting shenanigans.
Worse still, the tax credit paid for out of one budget surplus is likely to become a permanent tax cut in future years. Regardless of the cause of the forecasting error that produced the surplus, this plan would produce an ongoing erosion of the government’s revenue in the future. And this formula to divide surplus would be implemented each year without any public debate as to whether this course of action is appropriate under economic circumstances that may prevail years down the road.
Please! Let’s have a little less razzle-dazzle, and a little more sober public policy. With better forecasting, we wouldn’t have such dramatic surprise surpluses. Then we could debate how to use our financial resources through Parliament. You know, that place where spending and tax measures are supposed to be debated? It might not win the Nobel prize in marketing, but it sure would be better for democracy.
Ellen Russell is Senior Economist with the Canadian Centre for Policy Alternatives and one of the four independent fiscal forecasters reporting to the House of Commons Finance Committee.