After years of large surpluses, today’s announcement of a $1.6 billion federal budget surplus in 2004/05 may seem surprisingly low. Does that mean the cupboard is now bare in Ottawa?
Hardly. According to CCPA Senior Economist Ellen Russell, the surplus is low this year because Ottawa made public for the first time that it took money out of this year’s surplus to in effect “pre-pay” for several costly future expenditures. The effect of this prepayment was to reduce the 2004/05 surplus.
The expenditures handled in this pre-payment manner are one-time, expensive items. The Wait Time Reduction Fund was to have been expensed over several years; instead the government paid $4.3 billion up front. Likewise $2.8 billion from the Atlantic Offshore Agreement, which was to be paid down over 6 years was expensed in a lump-sum. And environmental liabilities of the Atomic Energy of Canada Limited constituted a $2.3 billion reduction in this year’s surplus.
This treatment of government expenses comes as a surprise. As recently as the February federal budget, both the Wait Time Reduction Fund and the Offshore Agreement were supposed to have been expensed over several years.
“If the government had dealt with these Wait Times and the Offshore Agreement in the manner they had indicated in the 2005 budget, the $1.6 billion surplus would have amounted to closer to $8 billion,” says Russell. “If all three items had been expensed gradually, the surplus would have come in the $10 billion range."
Ironically, this treatment of one-time expenditures should convey to Canadians that the federal government now has increased fiscal flexibility. “By prepaying expenses, the government will have many hundreds of millions of dollars more to spend in upcoming years.” Russell concludes.
For more information contact Kerri-Anne Finn, CCPA Communications Officer, at 613-563-1341 x306.