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Time to fix budget math

The following OpEd was published in the Calgary Herald

This week, the University of Calgary’s School of Public Policy held a daylong pow-wow in Edmonton to discuss how to fix Alberta’s convoluted budget framework.

The PC government’s last two budgets have obscured some basic facts that Albertans used to take for granted, like: what the real deficit is and how much debt our government is taking on. When the PCs repealed the Government Accountability Act and the Fiscal Responsibility Act, they changed the budget accounting to exclude billions of dollars from counting as spending.

This has led to a massive accountability problem. In it’s first quarter fiscal update, the government claimed that it was on track to run a $3.1 billion “operational surplus” this year.

If we tabulate total revenue versus total expenditures, then we arrive at a cash deficit of $3.1 billion, the exact inverse of the government’s “surplus.”

Alternatively, if you take all of the government’s savings and subtract all of their debts you come up with a “net financial assets” number. That figure is slated to drop by $2 billion this year, despite the government’s claim of a “surplus.”

Which of those two figures to use as the best measure of Alberta’s deficit is debatable, but one point was easily agreed upon by the meeting of minds in Edmonton: the government’s numbers are insufficiently clear for the purposes of democratic accountability.

Public budgets need to provide information in a fashion that allows taxpayers to judge for themselves if the government has struck the right balance between revenues and expenditures.

The crux of the disagreement between the government and the Canadian Taxpayers Federation on this matter comes down to what number matters the most, and how we arrive at it.

The PC government uses as its bottom line (the surplus or deficit if you will), the change in total assets. This makes sense for many businesses, where the purpose of its existence is to accumulate assets and to generate profit for its owner(s).

By contrast, the purpose of a government is to provide laws and services. Few would argue that the purpose of government is to own things and make profit.

While assets owned by a private business generally have a real, market value, government assets are much less clear. For example, if the Red Arrow Motorcoach company purchased another bus for its Calgary-Edmonton route, it could sell off that asset whenever it likes at the going rate for busses. Red Arrow’s owners have a pretty good idea of what that bus is worth on their balance sheet and record it as such.

By contrast, if the government builds a fire station, it would have a real public value to the people that it services, but it would be worth remarkably less than the government values it at if they tried to sell it. With few exceptions – government owned assets do not translate to market value as fluidly as private assets do.

This is all to say that when the government borrows $100 million to build a bridge, it is disingenuous for the government to put into the budget the value of that bridge as $100 million and claim that effectively, one cancels the other out.

When we do this on a larger, province-wide scale, we create a massive accountability problem that is leading to real erosion in Alberta’s fiscal position. Already, Alberta’s debt has topped $11 billion and is on track to pass $21 billion by 2017.

Premier Jim Prentice promised during his leadership campaign and recent by-elections that he would fix his government’s broken budget accounting practices to make them transparent and understandable again.

If he is serious about that commitment, he will find a ready partner in many Albertans who want to debate the substance of budgets, and not their accounting.

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