October 26, 2004
Kamloops Daily News


Oops, they did it again. For the fifth year in a row, the
federal Liberals underestimated the budget surplus.   Each
time they say that it was unavoidable.

In the most recent miscalculation, Ralph Goodale, the
finance minister got the numbers right but the order
reversed.  He forecast a surplus of $1.9 Billion but it was
actually $9.1 Billion.

Monte Solberg, finance critic for the Conservatives, joked
about the math, "perhaps the finance minister has dyslexia."

Conservative leader Stephen Harper was not amused. He
accusing the government of deliberately misleading the
public.  "These guys were lying," he fumed.

You might think that more money is a good thing - -like
finding that your bank account is $9,100 when you thought it
was only $1,900.

However, when the feds underestimate the budget surplus,
they also reduce spending on things that Canadians want;
health care, education, child care, cities, defense, and
highways.

So what happens to the $7.2 billion budget windfall?  The
short answer is "whatever the Liberals want."  Typically it
goes to paying down the debt, but Goodale is also talking
about tax reduction.

What angers many Canadians is that there is no public debate
over how this surplus is spent.  His "mistake" is
calculated, avoidable, and circumvents the parliamentary
process.

Once the fiscal year is closed,  Canadians have no say where
surpluses go.   It's automatically goes into the
government's piggy bank.  "Piggy bank financing is  a poor
way to build long term programs," says Ellen Russell, senior
economist for the Canadian Centre for Policy Alternatives.

The CCPA often does a better job of calculating the final
balance.  This year, their prediction was $8.3 Billion.  If
they can come close, with their limited resources, then why
can't the finance minister?

The government has all kinds of excuses.   The first is
prudence.  They purposely underestimate budgets of because
of 9/11, or SARS, or mad cow disease.  But in spite of years
of bad omens, the Canadian economy outperforms the fiscal
projections.   "Catastrophes can no longer be used as an
excuse for lack of realistic government forecasts," says
Russell.  "It's fiscal deception, not fiscal prudence."  

Then there is the tricky business of prediction.  Prime
Minister Martin compares fiscal forecasting to the delicate
correction of a golf swing, "It's like when you've got a
slice or hook."

Finance Minister Ralph Goodale says that forecasting is 
"more of an art than a science."  A small difference in
performance of the economy can have a large effect on the
surplus or deficit he explains, hastening to add that "a lot
of science goes into it."

If financing is so tricky, why aren't as many overestimates
as underestimates?   It turns out that overestimates are a
political disaster, as former B.C. premier Glen Clarke found
out.  

Before the 1996 election which the NDP won, Clarke predicted
that the budget was balanced when in fact they were $400
Million short.  Clarke's sin was to claim money designated
for renewal of logging communities on the positive side of
the books. The so-called "fudge-it budget" contributed to
Clarke's downfall.
 
Stephen Harper, who was then president of the National
Citizens' Coalition, was outraged.  He claimed that the NDP
election should be overturned.  "In British Columbia a
section of the Elections Act makes it illegal for
politicians to use fraudulent means to win office," Harper
said.

But no one really expects Martin's government will be
overturned, even with it's deliberately miscalculation.  
Not even this fragile minority government.

The politics of underestimating the federal budget resonate
with Canadian sensibilities.   For example, we all like
getting a tax refund at the end of the year rather than
paying more taxes.  It doesn't  seem matter that the
government used our money for a year, interest-free.  It
just feels good to get the cheque.

Premier Gordon Campbell would like to use fiscal forecasts
to his advantage.  He recently wished that B.C.'s fixed
election date was later in the year when the province's
finances are better known.

Campbell is certain that when the final numbers are in,
there will be a surplus above what he forecast.  Evidence,
he would claim, of how well the B.C. Liberals are doing.

Clarke's experience reinforced the idea that it's better to
deceptively lowball fiscal forecasts than paint a rosy
picture.   Fiscal forecasting is like weather forecasting -
- if you predict lousy weather and the sun shines, who can
complain?

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