Morneau’s Snapshot

2 minute read

In the Westminster system, the practice of preparing an annual budget of the nation’s finances is attributed to William Pitt the Younger. This prodigy, prime minister at 24, vastly reformed Britain’s chaotic public finances in the late 18th century and later led Britain through the Napoleonic wars in the early 19th. It never occurred to him that a war should stop him from presenting a budget.

But the Napoleonic and later world wars were not the COVID crisis, and our current government has not found its way to producing anything it dared to call a budget, although last week it did produce something called an “economic and fiscal snapshot”.

The history of Pitt’s reforms reminds us that a budget is as much about financial order and accountability as about taxing and spending. So it might come as a surprise that there is no legal requirement that the government present a budget each fiscal year, although Canada usually manages it. The Mackenzie King Government went nearly 16 months without a budget in 1943-44, less for the mere fact of world war than – get this – because it was awash with unexpected revenues and wasn’t sure what to do. Anyway, to get authority to spend money out of the consolidated revenue fund, the government need only present its spending estimates and receive the House’s approval for the requested allocations.

The “snapshot” earns its moniker in part by not telling us much about the future, notably how the exceptional provisions for the COVID crisis will be unwound and what comes next. It does tell us that deficit will be a whopping $343 billion and that the total national debt will reach some $1.2 trillion in 2020-21.

The government faced relatively little criticism for these numbers. Some Opposition voices have said things would be a lot better if the government hadn’t been running a deficit in the first place, but it’s a little hard to see the original deficit of $34 billion as a big factor in the actual deficit of $340 billion.

How bad is all this? Well, it’s not a straightforward question. Canada has always had public debt, and a key measure of a nation’s debt, like a household’s, is capacity to carry it. Our federal debt-to-GDP ratio will rise from 31% to 49%. Mr. Morneau would tell you this compares well to many other advanced countries – the US federal debt was over 100% of GDP long before its multi-trillion dollar COVID package, while Japan’s is well over 200%. And Morneau did point out that back in the 1990s debt service costs were 6% of GDP compared to 1% now. But national-only numbers can be misleading in federal states, as provincial debt has been climbing. And interest rates have nowhere to go but up.

Of course a sizeable portion of the deficit increase is due to declining revenues, and without fiscal support the losses would be higher – to say nothing of the human costs. But there will be a day of reckoning, and it will be a long time before all of this is behind us.

About the author

Karl Salgo

Karl Salgo

Executive Director - Public Governance

As Executive Director of Public Governance, Karl provides advisory services to multiple levels of government (provincial, federal and international) on all aspects of public sector governance, including institutional capacity, the center of government, organizational design and effectiveness, accountability, oversight, and risk management. He also plays a lead role in the IOG's research initiatives, including the work of the Public Governance Exchange, a syndicated, multi-jurisdictional forum for developing and exchanging ideas on public sector governance. Additionally, Karl provides educational services to public servants and appointees on a broad range of subjects, ranging from policy development and MC preparation to political savvy and the operations of government, to the responsibilities of directors in a wide range of public institutions.

A career public servant, Karl has degrees in political science, history and law from the University of Toronto and in public administration from the Queen’s University School of Policy Studies. He worked for many years in the federal Department of Finance, in areas as diverse as tax policy, communications and financial markets. In the latter capacity, Karl helped to establish the governance framework for the Canada Pension Plan Investment Board, and later served as Chief of Capital Markets Policy.

From 2004 to 2012, Karl worked in the Privy Council Office’s Machinery of Government Secretariat, where he provided advice to the Clerk of the Privy Council and the Prime Minister on the organization and structure of the Government of Canada – the Cabinet, portfolios, and the creation, winding-up and governance of individual organizations.

As Director of Strategic Policy from 2007 to 2012, Karl was the secretariat’s lead authority on Crown corporation governance, the conventions of the Westminster system, and the conduct standards applicable to ministers and other senior public office holders. Karl was the author/editor of numerous PCO publications, including Accountable Government: A Guide for Ministers and Ministers of State and Guidance for Deputy Ministers. Actively involved in realizing the myriad governance and accountability changes that flowed from the Federal Accountability Act, Karl played a lead role in the design and implementation of the accounting officer mechanism of deputy minister accountability.

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