Awash in money

New federal budget more than affordable
June 16, 2005

The federal budget still has one more major hurdle to clear before winning final approval from parliament. It will soon go for its third and final vote in the House of Commons.

Many will recall how the Liberals agreed to spend more money in order to secure NDP support in parliament, and then needed further support from Belinda Stronach and Chuck Cadman, independent M.P. from Surrey North, in order to get it passed last month.

The NDP/Liberal budget initiative promises $4.6 billion in new spending, which sounds like a lot of money, accustomed as we are to carrying around $5, $10 and $20 bills. But, the money is readily available, with plenty left over since the federal government takes in a lot more than it spends.

At the time it was agreed to spend more, the Fiscal Monitor put out by the Department of Finance reported a budget surplus for the first 11 months of the last fiscal year of about $19 billion. In February alone the budget surplus was about $5.8 billion.
So, one month’s surplus can be used to fund the additional spending the NDP pried out of the Liberals – for foreign aid, the environment, post-secondary education, and cities – with $1.2 billion left over.

It is quite stunning the lengths the government will go to ensure citizens do not have a clear picture of national finances. And yet we all have spending and revenue, and therefore budgets, and would be able understand what is going on with Ottawa's bank account, if we were given a fair picture.

Indeed, though thinking in billions can be a bit of stretch, managing the pocket book is a lot more onerous and stressful than working on national finances. While single moms are living below the poverty line, Ottawa can borrow at the best rates available in whatever quantities it wants. For income it has taxes, not disappearing access to welfare or low paid jobs.

Overall, in the first eleven months of this fiscal year the federal coffers took in about $180 billion in revenue. It dedicated about $130 billion to spending on programs: money for people, transfer to the provinces, salaries, and purchases of goods and services, including lots for tanks and guns.
The operating surplus of the government was thus $50 billion. This is the difference between taxes (income) and program spending.
Since the government has debt, in the form of bonds and shorter term treasury bills, it has financing charges. It must pay the interest on the outstanding debt. These financing charges of $31 billion can be deducted from the operating surplus to give the budgetary surplus of $19 billion.
Accumulated surpluses have amounted to over $60 billion over the past seven years. In other words, in its annual budgets the government has been deciding how much of our tax money it will not spend for current and future requirements. Then instead of investing in the future, it pays down the debt with this money.
Who loses from this strategy? Everybody whose needs go unmet, plus the next generation, and the environment.
TD Bank economist Don Drummond recently let the cat out of the bag. He does not like the spending increases because it forestalls cuts in income tax. So the best reason not to spend on health, education, the environment etc. is so the overpaid can pocket more in after tax income.
Drummond used to be in charge of fiscal policy at the Department of Finance. Where once that job was about creating employment and planning public investment, now it means count and then hide the operating surplus. What used to be a higher calling – public service – is now about how to keep your fellow citizens in the dark.

Duncan Cameron lives in Vancouver. He is a research associate with the Canadian Centre for Policy Alternatives, and writes weekly on politics for