Another lowball from the federal government. Instead of a $1.9 billion surplus as forecast last year, the Liberal finance minister this week announced that the government was really sitting on a surplus of $9.1 billion.
This “surprise” surplus announcement is now an annual event. Every year, Ottawa claims to have only a contingency reserve to shield it from deficit, approximately $3 billion annually. Then, every year, it posts enormous surpluses — between $7 billion and $20 billion a year since 2000.
How could federal forecasts be so far wrong? No economic forecast can perfectly predict the future. But the extent of the government’s forecasting error is truly impressive.
It’s not because greater accuracy is impossible. Every year, the Canadian Centre for Policy Alternatives forecasts the federal budget surplus more accurately than does the government. Last March, we predicted the government would have a surplus of $8.3 billion, less than a billion off the actual number.
Could it be a problem with federal forecasting models? Should we rest assured now that Tim O’Neill, chief economist at the Bank of Montreal, has been appointed by the federal government to delve into its forecasting?
Don’t hold your breath hoping this review will expose some technical glitch responsible for the huge discrepancy between official federal estimates and reality. This situation is comparable to a major league baseball pitcher throwing way off the plate four times in a row. You can bet a pitcher of that calibre is purposely walking the batter.
That the Liberals have been pitching at ankle-level for many years now compels us to conclude that the government is intentionally wrong in its fiscal forecasts. Elected officials deliberately misleading the public? Say it ain’t so, Paul.
But why is this deception tolerated?
Given the importance of official financial documents in an economy in which the accuracy of information is critical to sound economic decisions, how could Canadian businesses, or the Canadian media, tolerate official government forecasts that appear to be wrong by design?
One rationale for overlooking this appalling record is the argument that fiscal caution is appropriate for the government. In other words, the government can be forgiven for blatantly low-balling its surplus forecast because of the fear that unforeseen events could put it in the red.
But unforeseen events like what? The Asian financial crisis? The fall in the stock market? Disruption in the corporate world post-Enron? 9/11? Conflict in Iraq?
The rising Canadian dollar? Mad cow? SARS? We keep weathering these shocks and still emerge with big federal surpluses.
The government is practising fiscal deception masked as fiscal prudence. The surplus now functions as a piggy bank for debt repayment and as a fund from which the government can selectively cover politically expedient spending on a case-by-case basis.
Despite occasionally dipping into this fund, the “piggy bank” strategy undercuts government ability to reinvest in the priorities that Canadians consistently say they value most. You can’t design a coherent long-term project to rebuild Canada’s social and physical infrastructure based on piggy-bank politics.
If Canadians wish to engage in public debate about what the government can or cannot afford, they would be well-advised to ignore the federal fiscal forecasts — or find themselves passively promoting the Liberal government’s political spin.
The government may still blow its “fiscal prudence” smoke, but we don’t have to inhale it.
Ellen Russell is a senior economist with the Canadian Centre for Policy Alternatives.
