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Muddying the waters on budgets

Tory charge of NDP fudging needs closer examination

Hey there, time traveller!
This article was published 14/9/2011 (3303 days ago), so information in it may no longer be current.

Opinion

In an election, it's not necessary to be right when launching an attack on your competitor. In most instances, being not entirely wrong is good enough.

Such is the case with the lingering allegations from the Progressive Conservatives that the NDP government deliberately hid hundreds of millions in expenses and liabilities to make its current deficit position look better. Although balance sheets and accounting are pretty dry stuff, this particular issue is a key theme of the Tory campaign.

In its platform document, Tory Leader Hugh McFadyen promised to balance Manitoba's budget by 2018, four years later than the NDP's current pledge. McFadyen argued the NDP is too optimistic in its forecasts and as a result, it has no chance of balancing the budget by 2014. The Tories would be the party of prudence by announcing now they needed more time.

The "four more years of deficit financing" pledge looked a bit tenuous when the 2010-11 public accounts were released on the eve of the election. These are the final statements of expenditures and revenues for the last complete fiscal year. The public accounts indicated the summary deficit for last year was $170 million less than forecast, going from $467 million down to $298 million.

Against this backdrop, the 2018 target started to draw some internal flack. Party sources have indicated McFadyen's strategy upset some veteran supporters, arguing it went against the Tory assertion that they are better fiscal managers. Faced with growing concern, the allegation of doctored books arose. It is, however, an instance where those making the allegation are, at most, not entirely wrong.

Like all provinces other than Saskatchewan, Manitoba relies on what is called a "summary financial statement" when expressing its fiscal position. This statement includes all government assets, revenues, liabilities and expenditures of all government departments, Crown corporations and special operating agencies.

However, unlike most other provinces, Manitoba also produces a core operating statement that tracks tax-supported expenditures and services offered directly by government, and not through Crown corporations or agencies. Provincial auditors general do not like operating budgets; they prefer the summary budget because it is based on national accounting standards that put all the provinces on the same grid.

It is true that only using the summary budget allows a government to use revenues from Crown corporations like Manitoba Hydro to hide a spending problem on the core side. It is equally true, however, that government could be in deficit not because of spending, but because hydro revenues dropped during a drought cycle.

The other reason auditors don't like core budgets is they usually exclude certain liabilities and costs to make the bottom line look better. This is what the Tories have seized upon.

McFadyen and some allies, including former Tory finance minister Eric Stefanson and U of M economist John McCallum, argue Selinger deliberately misled Manitobans by not properly recording cash in from Crown corporations and outgoing loans and other advances in the core budget. A note in the public accounts confirmed these exceptions. If they are added in, the operating deficit would be $190 million higher. McFadyen's numbers are essentially correct, but not his assertion about what they mean.

In an interview, Manitoba auditor general Carol Bellringer, who is responsible for auditing the public accounts, said the deficit figures were accurately reported. She did not comment on whether the operating deficit was a problem, or worthy of debate. However, a longer conversation with Bellringer does help expose what McFadyen left out of his allegations.

First, Bellringer noted that excluding some costs and liabilities from the core operating budget is a long-standing practice Tory and NDP governments have used for decades. It was employed widely even after the government of Tory premier Gary Filmon brought in the Balanced Budget Law in the mid-1990s.

During that period, for example, the operating budgets -- that Stefanson himself introduced as finance minister -- excluded the civil service pension liability when reporting the bottom line. The liability grew because successive governments failed to pay any of the employers' contribution. In the early 2000s, the NDP introduced a 40-year plan to pay down the liability, then pegged at $3 billion. Starting in 2008, this liability was fully recorded in the summary budget. It's still not used in the operating budget.

The Filmon government also created the Fiscal Stabilization Fund to help further muddy the waters. Rather than suffer a deficit, the province would take money from its "Rainy Day Fund," a separately recorded savings account, to cover any shortfall. Most auditors believe this skews the bottom line on operating financial statements.

The Tories may argue the monies moved in, and the liabilities left out, are different than those they moved in and left out. The fact is the NDP and the Tories did what they did for the same reason: to improve the bottom line.

The shame is that, stripped of the conspiracy theories, McFadyen may have a point. It appears the province will continue for some time to spend more on programs than it reaps in revenues. However, it's up to McFadyen to make the case about why, as we appear headed to another economic slowdown, this is fiscal mismanagement and not fiscal circumstance. To date, he hasn't done that.

Fortunately, election campaigns are not one week long. That means there's still time to reframe this debate, and turn it from a muddy mess into a bona fide campaign issue.

dan.lett@freepress.mb.ca

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