Budgets more than numbers

December 10, 2011

The Nova Scotia Department of Finance recently launched an interactive “Back to Balance” website, giving community members an opportunity to try their hands at government budgeting.

The site is technically sophisticated and informative. Users can move sliders to adjust the levels of various taxes and expenditures, and pop-up bubbles provide feedback on the implications of these decisions. Because the site adds up the costs and revenues associated with each choice, it helps people appreciate the relationship between the government services we get and the taxes we pay.

While the Finance Department deserves praise for helping citizens gain insight into the budget-making process, the site contains numerous limitations that create a biased view of the fiscal choices facing the Nova Scotia government. Most glaringly, the website overstates the deficit. It starts from an assumed deficit of $390 million; however, the latest government estimate is for $319 million, which we note represents less than 1% of Nova Scotia’s GDP of over $36 billion.

The front page of the site also starts with a graph showing Nova Scotia’s net debt rising – which is a bit misleading because it does not take into account a government’s ability to pay, which depends on the province’s GDP. As the Finance Department’s 2011-12 budget showed, Nova Scotia’s debt-to-GDP ratio fell from 39.1% in 2006-07 to 36.3% in 2010-11. Thus, Nova Scotia’s fiscal position is already improving, even without a balanced budget, because growth and inflation have meant that Nova Scotia’s GDP has been rising faster than its debt. The “Back to Balance” website fails to recognize the role that economic growth plays in raising tax revenue. Moreover, given that the global economy is stagnating, and government cutbacks lead to slower growth and increased unemployment, the website has no place to ask: “Is this the time to cut public sector jobs and services?”

Another significant shortcoming of the “Back to Balance” exercise stems from the limitations on the adjustments that can be made to taxes and expenditures. For example, the exercise permits spending cuts up to ten percentage points; however, it allows the various income tax rates to be raised by only one percentage point – a fairly clear bias in favor of spending cuts over tax increases.

Finally, this exercise would be more informative if real meaning were attached to changes in spending. Moving a slider over health spending or education is one thing, but it is very different from understanding the implications of budget decisions in terms of who or what will be affected. How many jobs will be lost? How many actual hospitals or schools would close as a result? Budgeting is not just an impersonal play on anonymous numbers – and pretending that it is really does not highlight the complex, difficult decisions that face our government.

While these kinds of budgetary tools can help citizens participate in the budgeting process, the constraints imposed by the tool leave very little room to propose alternatives to the government's fiscal agenda and framework. The design of the government's budget tool creates the impression that deep spending cuts are a necessary choice (the government's position). The Finance Department should expand the choices available on the website to reflect the full range of choices available to the government.

Government budgets are policy statements. They reflect the social and economic priorities of governments by the way they allocate resources and raise revenue. Any such exercise needs to be clear about what the starting point is, what assumptions are built in about spending priorities, and revenue-raising possibilities, as has been the case with Canadian Centre for Policy Alternative's alternative budgets.

The CCPA-NS has produced alternative fiscal frameworks to achieve the end goals of a more economically, socially just and environmentally sustainable province for 10 years now. The CCPA has produced alternative federal budgets (AFB) for even longer and launched its own budget tool last year, which includes a calculator for the impact of budget choices on unemployment -a critical part of this exercise. Our experience producing these budgets is that community members need more opportunities and meaningful ways to advance our understanding of the full meaning of budgetary choices and trade-offs, and therefore to influence them.

All alternative budgets can be downloaded free at www.policyalternatives.ca. The AFB tool can be accessed here: http://www.policyalternatives.ca/multimedia/so-you-think-you-can-budget

An edited version of this commentary was first published by the Halifax Chronicle Herald.