In theory, the management of public funds by Canada’s senior governments – federal, provincial and territorial – reflects the preferences of Canadians, expressed through their elected representatives. In practice, however, the revenues and expenses of senior governments – and the differences between them, which affect each government’s net worth and capacity to deliver services in the future – do not resemble budget targets closely enough to conclude that accountability for public funds functions well in Canada. Comparing the fiscal plans in the budgets delivered by Canada’s federal, provincial and territorial governments at the beginning of each year with their financial statements after the end of the year reveals not just that they routinely miss their targets by meaningful amounts, but that the gaps between budgets and results are not random. One consistent pattern is that both year-end expenses and revenues typically come in above what governments promised in their budgets. Over the 19 fiscal years since 2000/01, Canada’s senior governments overshot their expense targets by $97 billion. That cumulative overshoot means that governments went into the COVID-19 crisis bigger than they would have been – spending $2,600 more per Canadian than they would have been – if they had fulfilled their budget commitments. Even more startling is the cumulative revenue overshoot since 2000/01: $161 billion. Canada’s senior governments went into the crisis raising $4,300 per Canadian more than they would have if they had hit their annual revenue targets. Ottawa, the provinces and territories would have been better prepared for the pressures to expand their activities they now face if they had fulfilled their past budget commitments. Comparing the annual patterns of overshoots and undershoots over time raises a further concern. If governments’ responses to economic cycles were guided largely by the desire to stabilize taxes, programs and the economy, slumps would cause overshoots of expenses coincident with undershoots of revenue, and booms would cause undershoots of expenses coincident with overshoots of revenue. However, that is not the dominant pattern for Canada’s senior governments. Overshoots on either side of the ledger tend to coincide. That suggests that these governments underprojected revenues deliberately and spent most of the resulting in-year “surprise,” or that they otherwise “managed” their numbers to achieve a predetermined bottom line. Although the fiscal response to COVID-19 will make the senior governments’ spending overshoots in the current 2020/21 fiscal year much worse, we note some encouraging developments over the 19 fiscal years examined in this report. The tendency to miss budget targets, and the troubling annual patterns of misses, were less pronounced in the most recent six years than they were before that. The size of below-the-line adjustments has also tended to shrink. With the COVID-19 crisis having driven Canada’s senior governments so deeply into the red that their future capacity to deliver services is in doubt, more reliable budget targets and better adherence to those targets is vital. Legislators and voters should ensure that budgets and results align better in the future
