The Pinocchio Effect: Bureaucrats regularly spend more than
their legislatures have budgeted. These missed targets deny
democracy
National Post
Fri 02 Mar 2007

Page: FP15
Section: FP Comment
Byline: William Robson And
Yvan Guillemette

Source: Financial Post

As Canada's federal, provincial and territorial
governments table their budgets, this spring, many Canadians will express doubts
that this annual exercise in fiscal accountability is worth the effort. And no
wonder -- if their past record is anything to go by, the overspending that
follows the budgets will sweep the country like some sort of seasonal flu.
Canadian legislators have such a poor record of keeping their budget promises to
voters over the past decade that the cumulative overruns deserve a clinical name
-- say, the "Pinocchio Effect."

We are now in the midst of budget season. The Northwest Territories and
Quebec have already tabled their budgets; Ottawa's is due for delivery on March
19, and the rest are soon to follow. This year's budget commitments will be
widely reported and subject to votes of confidence in legislatures -- as they
should be. This is the one time of year when MPs and MLAs have the big picture
in front of them, in budgets on which governments stand or fall. But with
governments also approaching the March 31 ends of the fiscal years for which
they voted budgets in early 2006, this is an especially apt time to ask: What
happens next? Do governments end up doing what legislatures vote?

The short answer, as our recent C.D. Howe Institute study documents, is: usually not. They often
miss targets badly, and usually spend more than they said they would. In the
past decade, Canadian governments have shown a tendency to spending overruns.
The total overrun over those years topped $63-billion. That cumulative bill now
sits on Canadians: tens of-billions of higher public debts and tens of-billions
of higher taxes.

Our study, the 2007 Fiscal Accountability Ranking" clearly demonstrates that
elected officials need to be much more rigorous in their stewardship of our
money. If we believe that there should be no taxation without representation,
then we must ensure that those representatives who tax us are fully accountable.
Their votes on budget bills must mean something.

Our analysis looked at every federal, provincial and territorial budget over
the last decade. We compared "announced spending increases" with "actual
spending increases," to determine how much spending overshot (or undershot) the
budget. (To calculate announced spending, we took the difference between the
total spending announced in each budget for the upcoming year, and the spending
shown in the same document for the past fiscal year, just ended or ending. To
determine the actual spending change, we referred to the public accounts
released after the end of the year.) Here's what we found.

First, the bias in the difference between outcomes and budgets was positive.
In plain language, governments tended to spend more than they voted -- billions
more. On average, the annual overrun over the past decade was 4%. Sounds small?
Based on total projected government spending this year of $430-billion, that
margin of error amounts to $17-billion. That's not peanuts. In fact, that
$17-billion is more than the entire defence budget. And that overspending means
higher taxes down the road.

The second thing we found was that some governments did better on this front
and some worse. Quebec, New Brunswick and Ontario were among the better
performers, with average overruns of less than 3%. Alberta, Yukon and Nunavut
were among the worst, at around 9%. Clearly, those who don't budget well have
something to learn from those who do.

It is one thing to have costly government and high taxes because that is what
legislators voted for at the beginning of the year. It is another thing entirely
to have costly government and high taxes as a result of unbudgeted spending
hikes or, worse yet, "end-of-March burnoffs" in which governments splurge at, or
even after, the end of the fiscal year. To honour that fundamental democratic
principle of "No taxation without representation," we need more effective
representation by those who tax us. We need elected representatives who will
keep their budgetary commitments.

We should not accept misleading projections in this spring's budgets. And we
should not accept unbudgeted spending increases through the year. We will need
that money for future fiscal challenges brought on by our ageing population.
Canada's unfunded fiscal liability related to demographic change amounts to more
than $800-billion, roughly equal to the current total debt of Ottawa and all the
provinces. Unless we are prudent today, we will face massive tax increases
and/or essential program cutbacks tomorrow.

Effective representation requires that the votes of confidence on budgets in
the coming weeks mean something. Only when they get the Pinocchio effect under
control can Canadians truly hold their governments to account and know that the
taxes they pay are under the control of the representatives they elect.

- - -

- William B.P. Robson is president and chief executive of the C.D. Howe Institute and
Yvan Guillemette
is policy analyst at the institute. They are co-authors, with Reid S. Adrian, of
"Missed Targets: Canada's 2007 Fiscal Accountability Ranking," available at
www.cdhowe.org.

Illustration:
• Black & White Photo : C.D. Howe Institute,
National Post / THE PINOCCHIO EFFECT: WHO MISSED THE MOST.
•

Edition: National
Story Type: Business; Opinion

Length: 829 words