Building a better budget process

Opinion

Hey there, time traveller!
This article was published 04/11/2023 (703 days ago), so information in it may no longer be current.

A wise observer once quipped that, “Reviewing a government budget is much like going through the attic in an old home.”

Discovering and understanding the details of past government taxing, spending and borrowing decisions takes work. Changing past fiscal policy decisions is difficult, because there are always pressures to protect the family heirlooms stored in the attic.

The development of the budget is the single most important activity in any given year. It reflects the real priorities of government more than all the nice sounding words of a Throne Speech outlining the government’s legislative agenda. Budgets determine who in society bears the costs, and who gains the benefits, of government.

There are always more demands than money available, so tough choices involving allocations to departments and programs must be made. Past spending decisions, often entrenched in legislation (statutory spending), make shifts in expenditures difficult. Eliminating programs entirely has been likened to throwing away boomerangs because they always keep coming back with new names.

During the campaign, Wab Kinew promised that his government would stick for the remainder of this fiscal year with many of the budgetary policies of the former PC government. This included the tax cuts which meant less revenue, a temporary removal of the provincial gas tax, no new major tax increases, and a promise to eventually invest heavily with new spending in healthcare and several other policy fields.

“The economic horse, “Kinew declared, “would pull the social policy cart.”

Strong economic growth and continuing generous financial transfers from the national government are crucial to the delivery of the NDP promises, including the promised balanced budget during its first term in office. The use of unspent funds and an efficiency review of departments will deliver some additional financial room. It is also important to note that current spending as a percentage of GDP is not excessive and the credit rating of the province (which affects costs of borrowing) is sound.

Even if these fortuitous circumstances persist, tough budgetary choices will be required.

Typically, budget making is incremental, meaning that not all spending is reviewed, and only marginal changes are made to spending levels, usually in an upward direction. Political pressures, lack of evaluation information, and the limited time available are among the factors which lead to incrementalism.

Centralization of decision-making is seen as essential to achieving a balance between revenues and expenditures. A simple description of the Manitoba process is as follows: the Treasury Board committee of cabinet chaired by the minister of finance and supported by the Treasury Board Secretariat is responsible for developing the annual expenditure budget in line with the government’s priorities.

Direction and approval from the premier are required before the budget is presented to the cabinet and subsequently to the legislature for approval. Under NDP premier Gary Doer (1999-2009), then-Finance Minister Greg Selinger delivered nine balanced budgets, which probably did not reflect his personal policy preferences.

Subsequently, then-Premier Brian Pallister pushed the use of business plans, performance reports, and balanced scorecards supposedly to document progress on government priorities, to provide evidence to support budget decision-making, and to promote financial transparency.

In practice, utilization of such documents was limited; instead Pallister personally drove a forced-paced budgetary process intended to achieve his overriding goal of shrinking the size of government.

On Oct. 19, Premier Kinew announced the creation of cabinet committees covering the four broad, priority policy areas of poverty reduction, healthy children, economic development, and missing and murdered, Indigenous women, children and two-spirit persons.

These complex fields demand holistic, government-wide, consultative approaches to the formulation of policy. To encourage longer range thinking and integration with budgeting, each committee should be assigned an envelope of money with authority to recommend shifts in spending across programs to the Treasury Board, the expenditure management committee of cabinet.

An add-back approach to budgeting might also assist the Kinew government with realigning annual spending to match its priorities.

It would involve giving each department its own percentage target for reductions from their spending levels of the previous year. For example, a department might be directed to indicate the impact of a five per cent reduction and make the case for why existing levels should be maintained or increased.

This approach would capitalize on the first-hand knowledge of department managers, identify potential efficiencies, provide central decision-makers with options, and potentially release funds for other purposes.

The NDP has to work harder than the PCs to convince voters that they can be trusted with public money. Limited funds and inevitable calculations about what is politically acceptable mean incrementalism will likely prevail under Premier Kinew.

To end with another metaphor: “There is no mythical fiscal rabbit to be pulled out of a magical budgetary hat.”

Paul G. Thomas is professor emeritus of Political Studies at the University of Manitoba.