POLITICS

Bill Morneau's Claim Of Liberals Inheriting Deficit From Tories Contains 'A Little Baloney'

11/26/2015 07:51 EST | Updated 11/26/2016 05:12 EST
CP
OTTAWA — "We wanted to show this is the situation that we've inherited." — Federal Finance Minister Bill Morneau on Nov. 20 after tabling the new Liberal government's fiscal and economic update.

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The Liberals opened the federal books last week to reveal that Ottawa was headed for a $3-billion deficit in this 2015-16 fiscal year.

The prediction marked a considerable turnaround from the $1.4-billion surplus forecast just seven months ago by their Conservatives predecessors.

Morneau's fiscal update also represented a swing away from the $1.2-billion surplus the parliamentary budget office projected less than two weeks earlier.

On top of that, the update's year-end fiscal projection means the government bank account will endure a rough six months because the federal balance had a $1.6-billion surplus after the first half of 2015-16, according to monthly tallies.

Morneau blamed the downgrade on the further decline in commodity prices, the unexpectedly fragile global economy and the economy's unanticipated contraction over the first two quarters of 2015.

But some experts have questioned whether those economic changes are enough to siphon $4.4 billion from the Tories' April projection, which raises a query: Did the Liberals inherit the deficit?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).

This one earns a rating of "a little baloney." Here's why.

A little baloney

THE FACTS

Since April, when the former Conservative government released its budget projecting a $1.4-billion surplus for 2015-16, there's no doubt the already-fragile economic situation has deteriorated.

The new Liberal government said last week that conditions had worsened to the point that Ottawa was now on track to run a $3-billion shortfall, without factoring in the cost of measures promised in its election platform. The update said it would rack up an additional $2.5 billion in expenses and lose $1.9 billion more in revenue.

Among the biggest changes, the updated projection for the category of "other revenues" was now expected to bring in $1.4 billion less cash than the April prediction. That classification, the Finance Department says, includes revenues from sources such as Crown corporations, returns on investments and the government's foreign-exchange account.

The government said the downgraded forecast for the category is primarily due to lower expected revenues from Crown corporations and the drop in interest rates.

The extra $2.5 billion in government expenses are primarily tied to an extra $1.5 billion in costs this fiscal year — compared to the April estimate — in Employment Insurance payouts. The government is expected to make more withdrawals from the fund due to the struggling economy.

Ottawa also anticipated a $1-billion increase in direct program expenses, mostly related to higher costs for public service pensions and benefits, which are pushed upwards by lower projected long-term interest rates.

However, just 10 days before the fiscal update, the parliamentary budget office predicted a $1.2-billion surplus for 2015-16.

And up until the end of July — after the first four months of the fiscal year — the Finance Department's monthly fiscal monitor reported a $5.2-billion budgetary surplus. That year-to-date tally has since deteriorated to a $1.6-billion surplus, for April to September.

Morneau and the Liberals, who took power earlier this month, say they inherited the deficit situation.

WHAT THE EXPERTS SAY

Stephen Gordon, an economics professor, said it's difficult to determine if the deficit was indeed passed down from the previous government because some of the key negatives in the fiscal update remain murky.

Gordon, of Quebec City's Laval University, added he was puzzled by the projected, $4.6-billion drop in the balance over the final six months of the fiscal year and the contents of the "other revenues" category.

He said it's possible there might be a certain amount of discretion whether the Finance Department books some of the revenue decreases this year or in future budgets.

"We still don't know if it's the Conservatives or the Liberals, basically, who were padding things one way or the other — or if it really is all honest and above board," said Gordon.

"We don't know and there's just not a lot of transparency there for that."

He added it might be in the Liberals' interest to show that things were worse than they had expected as a way to deflect future fiscal criticism.

"You want to get as much bad news as possible shovelled out the door and dumped on the previous tenant."

Asked to provide more information about the fiscal impact of Crown corporations, a Finance Department official emailed that the biggest decline in expected revenue will come from the Canada Mortgage and Housing Corp. But the department declined to provide more details about CMHC or other Crown corporations.

The department also said the 2015-16 projections were updated to reflect year-to-date revenue and expenditures, the most-recent 2015 economic data, the results of the new survey of private sector economists and the final 2014-15 fiscal results.

The Liberal government made no changes to the methodology, the official said.

Jack Mintz, an economist from the University of Calgary, agreed that economic conditions have declined since April. But when he looked at the latest number in the fiscal monitor he wondered whether September's $1.6-billion year-to-date surplus could possibly transform into a $3-billion annual shortfall in only six months.

"I'm not sure that's going to happen, but we'll see," Mintz said.

But another expert says the numbers appear to make sense and he expects the government to run a shortfall in 2015-16.

Peter DeVries, a former senior Finance official, pointed to the recent deterioration in the fiscal balance due to factors like lower-than-expected oil prices and an extended period of zero growth.

He also highlighted the negative effects of the weaker exchange rate and lower interest rates on things like the public-service pensions and benefits.

And when it comes to the decline in recent months in the fiscal monitor's budgetary balance, DeVries noted it happened under the watch of Stephen Harper's Conservatives.

"There definitely is an element of an inherited deficit in it," said DeVries, who helped put together roughly 20 budgets between 1985 and 2005.

THE VERDICT

While it's true the economy and the 2015-16 fiscal situation eroded during the Conservatives' reign, the final few months of the fiscal year will fall under the Liberals' tenure.

And the public still needs more information on the makeup of that deficit to determine whether it's truly one to hang on the Conservatives.

For that reason, Morneau's statement rates "a little baloney."

METHODOLOGY

Baloney Scale Chart

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

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