Thursday, March 12, 2015

Money! What is a deficit?

I've been following budgets across provinces for many years.

One of the more interesting things is that the most recent Redford budget in Alberta was, supposedly, a balanced budget. However, it also had a deficit.

How is that possible?

Government budgets are confusing. They are far more complex than a personal budget, however, I will try to make comparisons between the two to help explain things.

The largest portion of the budget of any level of government is the so-called operating budget. This is money that the government uses to operate. For a personal budget this would include things like rent or a mortgage payment. You need to pay your rent to keep living in your apartment.

Operating budgets include things like wages, which alone take up about half of every government budget, as well as any other expense needed to operate the business of government (think ink for a printer)

The last Redford budget had revenues paying for the operating budget.

Capital budget is another important factor. Most provinces, and in fact, Alberta before Redford decided to play with definitions, include the Capital and Operating budget as part of "Program Expenditures". This is standard for Province and Federal level budgets across North America. Municipalities, though, still separate the two. Toronto, for example, considers buying a new bus to be a capital expenditure, while paying someone to drive, and maintain that bus, and to fill it with diesel, are operating expenses.

Beyond that there are also two types of revenue. General revenue is money from taxes, while program-specific revenue comes from things like transit fares. This specific revenue is often tied to crown corporations, which have their own profits and deficits.

Last is paying for debt. Most provincial, federal, and municipal debt is, in fact, not some kind of amorphous blob as the media likes to portrait. They often compare it to a credit card debt. It's just "there", you pay interest, and pay what you want when you want off the principal.

This is a slightly out dated list of what Greece's debt is
As you can see each thing is it's own individual payment.

This brings me to the point I'd like to make.

Imagine the government as a person with 10 credit cards. This person decides to define those credit cards in a different way. Perhaps on their Visa they have a very high limit; they use this from time to time to get money to pay the rent. On their MasterCard, which they use to buy new shower head once in a while, the limit is lower. Lastly, the other 8 are used for various and specific things.

At the end of the year this person has managed to keep their total owing on their Visa to the same. They could claim they've lived a balanced year, but if their MasterCard is higher, that is clearly not true.

Counting the total debt owed year after year is an excellent way to find out if this person is actually living within their means or not.

The same is true for provinces.
I present data from the Royal Bank, outlining the total debt of the Provinces, year after year.

You'll notice I've coloured a few slots in.

In the square outline are years where the debt has gone down, and the background of these slots is coloured in with the party that made that year's budget.

In the hex (6-sided) outline, are years where the debt went up by a high amount. These are bad years. Again, coloured by the party.

As you can see there are a few patterns; which I've outlined in exaggerated } symbols.

These are terms of individual Premiers or Prime Ministers.

Ralph Klein's term is quite easily visible. Many likely credit this to oil, and that is part of the answer, but Klein was able to reduce the debt load year after year even when the price of oil fell. Compare this to his predecessor, who significantly increased the debt. Both are Tories, so you can't blame one party for breaking things and another for fixing it.

In Saskatchewan we again see one premier rack up debt that is paid off by another. In this case it's the NDP that manages the finances well.

The NDP however does not get points as over in Ontario the reign of Bob Rae clearly shows things when they go wrong.

In fact one thing that this graphic shows is that all 3 parties have had good and bad budgets. There are a few, though simplistic, trends to note.

Liberals tend to be bad for the budget while Tories are good for it. Comparatively, however, NDP governments are best.

The NDP is without a doubt the way to go if you want a balanced budget in one of these provinces. The Tories have had mixed success, balancing out to a negative.

Good luck finding a party that manages the finances well. Both major parties have had screw ups and 'successes', but the NDP is without a doubt the worst

Like Ontario, no party can really claim to be good at this, and like Ontario, the NDP is really something to avoid.

Frankly, the most stable of all the provinces. When debts do increase it tends to be by smaller amounts, but, the debt has increased in every year measured save one. One thing this graphic outlines is Quebec is not the fiscal mess some would like to think it is.

Trudeau Sr and Brian Mulroney were terrible for the debt. Chretien, Martin, and even Harper have been far more responsible.

In the end you can see the sad reality that very frequently, the total debt simply increases. Only three governments have seemed to be serious about keeping this under control. The Liberal Chretien/Martin government, the NDP Romanow government, and the Tory Klein government.

I for one would rather see a government that is truly committed to fiscal responsibility over one that is of a particular political stripe.


  1. You mean all parties have their good and bad budgets?? Oh my God! I never would have expected the truth to be far more complicated than VOTE PC/NDP GET SURPLUS!!

  2. Did you/RBC control for changes to government accounting systems?