Balanced budgets take time

Hey there, time traveller!
This article was published 14/03/2017 (3177 days ago), so information in it may no longer be current.

Balanced-budget legislation has been the rallying cry of numerous governments both federally and provincially since the early 1990s. But just how effective is this type of legislation in erasing the red ink? The answer: not very. For the most part, it appears to be a hollow symbolic gesture aimed to placate the public. That hasn’t stopped the Pallister government, however, from introducing new balanced-budget legislation in order to justify its push for austerity.

British Columbia was the first province to introduce balanced-budget legislation (BBL) back in 1991. Other provinces followed suit, including Manitoba, which enacted one of the most comprehensive BBL in the country in 1995. The Filmon government required governments to balance the budget (both operating and capital) annually and to retire the debt in 30 years. Manitoba was the first province to also impose penalties on government MLAs for non-compliance.

The NDP government in 2008 passed a new act, The Balanced Budget, Fiscal Management And Taxpayer’s Accountability Act. It replaced the annual requirement for a balanced budget with a need to balance it over a four-year cycle.

A 2012 study by researchers Wayne Simpson and Jared Wesley (both then at the University of Manitoba) analyzed BBL in the four western provinces between 1989 and 2008, the year in which the recession started. They determined that BBL had “no discernible effect in restraining expenditure growth relative to revenue grown in any province.” During that period, expenditures exceed revenues in most of the provinces under study. They also suggested they couldn’t “associate BBL with an improvement in provincial fiscal positions that would sustain budget surpluses in the long term.”

Subsequently, Mr. Simpson has also been critical of the NDP in Manitoba for suspending its BBL after 2008, because the government had made the legislation more flexible and didn’t even wait to see how serious the recession would be.

So now it’s Premier Brian Pallister’s turn. His government is on pace to incur a deficit of just more than $1 billion, $93 million more than budgeted last fall and up from the $846 million from the previous year under the NDP. The Fiscal Responsibility and Taxpayer Protection Act, tabled Monday, “sets a principled course of sound financial decision-making to ensure a sustainable financial future for the province.” According to Finance Minister Cameron Friesen, the legislation would require that each year the budget must show progress with increasingly smaller deficits.

There’s nothing wrong with government setting this as a goal. But there are opportunities for this government to manipulate what progress is. As well, fiscal restraint through balanced budgets can be too confining, particularly when the economy unexpectedly goes into a downturn, much like what happened in 2008. For provinces such as Manitoba, which are regularly hit with weather-related catastrophes such as flooding or are reliant on transfer payments, it lacks flexibility. It shouldn’t focus on one year at a time, but instead balance over a four-year period.

Mr. Pallister knows that ensuring fiscal rules are in place with an eye toward balancing the budget will sell to his base. He also knows, or at the very least should know, that BBL can blow up in a government’s face, regardless of how dedicated it is to being fiscally responsible. He needs to tread carefully to ensure the Tories don’t have to backtrack on promises they may not be able to keep or have to change their definition of what progress is to fit tough economic times. In short, Mr. Pallister will have to work hard to not make his government the exception to the rules he puts in place.