Budget overspending unacceptable: C.D. Howe

A report released by the C.D. Howe Institute, a prominent Canadian think-tank, finds that both the federal government and provincial governments of Canada have had poor track records in meeting their budget commitments over the past 10 years: more often than not, they have spent beyond what was planned.

Presenting the results of these findings to the Economic Club of Toronto on Monday, William Robson, C.D. Howe’s CEO, said that the governments’ track records of missing budget targets is troubling, especially in light of the anticipated demographic shift that is expected in Canada over the next two decades.

On average, Robson said that governments missed their forecasted spending targets by about 4% over the 10-year period studied.

“That amount is not small,” he said. “A 4% overrun in federal government spending would be about $17 billion, which is more than national defence spending.

And that 4% is a relatively conservative figure. Alberta, one of the perennial worst offenders, had spending overruns of more than 11% in 2005/2006. Robson did highlight that many Canadian governments underestimated the amount of revenue they would earn, so in the case of a province like Alberta, which had huge revenues from oil, the provincial government had more to spend.

Robson said that C.D. Howe would much rather see the extra revenue given back to Canadians via tax reductions or saved, rather than seeing it added to annual spending. This is partly because of the huge financial burden the Canadian government is going to have to carry when the current boomer generation retires. By investing the extra savings now, governments could potentially offset the fiscal burden of the future.

“We should be conserving for when more of us are retired,” he said. Robson explained that because of healthcare costs, the government spends more on the elderly than it does on the young, and as a much greater proportion of the population ages, the costs incurred by the government could be staggering.

A brief that C.D. Howe released in October 2006 estimates that, due to a declining workforce and aging population, over the next 50 years Canada will have a shortfall of more than $810 billion, which is the equivalent of the actuarial value of all future payouts from CPP/QPP earned until now that are not currently funded. The vast majority of these costs will be incurred by the provinces, which are responsible for healthcare spending.

C.D. Howe believes that having this money downloaded on Canadians can be avoided through prudent fiscal management by governments. The October brief mentions that improving the balance of benefits and costs in health and education programs is one avenue to address the problem, but also, governments should pay down regular debt and consider pre-funding foreseeable expenses such as drug programs with the excess revenues they earn over the next decade.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com