Conservative Claim About Leaving Behind Surplus Contains 'Some Baloney'

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OTTAWA — "Last week, Finance Canada actually announced that the federal government had a $7.5 billion surplus. It is the fourth time that officials at Finance Canada have actually confirmed that we left them with a surplus, and that is because of our strong fiscal management and the fact that we are prudent on balanced budgets." Conservative finance critic Lisa Raitt.

"Mr. Speaker, it must be frustrating for the Minister of Finance that the facts keep getting in the way of his rhetoric. Once again, he has been completely contradicted by his own department, which reported that he inherited a $7.5 billion Conservative surplus." Conservative MP Phil McColeman.

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Ever since the Liberals were sworn into office last Nov. 4, the Conservatives have used the monthly Fiscal Monitor published by the Finance Department to bolster their case that the new government inherited a budgetary surplus.

lisa raitt
Conservative MP Lisa Raitt speaks during question period in the House of Commons on Monday, Feb. 22, 2016. (Photo: Sean Kilpatrick/CP)

The Fiscal Monitor keeps a running tally of government expenditures versus revenues.

The November data showed that for the first eight months of fiscal 2015-16 — from April through November — the government's books were $1 billion in the black. By the time the February Fiscal Monitor was published last week, that surplus had grown to $7.5 billion through 11 months of fiscal 2015-16.

The Liberal budget of March 22, meanwhile, forecast a year-end deficit of $5.4 billion — suggesting that a staggering $12.9-billion turnaround would take place in the final month of the fiscal year.

The Conservatives pounced, asserting in the House of Commons this week that the Liberals "inherited a $7.5 billion Conservative surplus." The party even posted a Star Wars-themed meme riffing on the legend of Conservative surpluses being true.

So did the Liberals inherit a $7.5 billion surplus from the previous government?

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 "some baloney" — the statement is partly accurate but important details are missing.

Here's why:

THE FACTS

There has been a great deal of jockeying over the state of federal finances over the past year, starting with a Conservative budget delivered last April 21 that projected an election-year surplus of $1.4 billion.

The Liberals immediately disputed the 2015-16 budget figures and insisted the federal books were actually in deficit, a stance they've maintained even in the face of favourable Fiscal Monitor reports showing growing surpluses.

Some baloney

Surpluses or deficits based on mid-year — or even late-year — assessments of the books can give a sense of direction, but never tell the full fiscal story. That's because revenues and expenses for the year are booked at different times. Think of the ups and downs of your monthly bank account, depending on whether it's payday or the rent and utility bills have just been settled.

A look back over the previous nine years under Conservative management shows the volatility of even the February Fiscal Monitor numbers.

In 2009-10, for example, the final year-end federal deficit wound up at $55.6 billion — fully $15.1 billion worse than the 11-month figures showed in February 2010. In 2011-12, the final deficit was $11.8 billion deeper than the February figure. Last year, the final deficit was $4 billion deeper.

Over the nine full years the previous government was in office, the average change in the final surplus/deficit figure between the February fiscal monitor tally and the year-end accounting that's released the following September was negative $4.9 billion.

Clearly, a lot happens in March and in financial adjustments after the fiscal year-end.

WHAT THE EXPERTS SAY

Government spending in March is typically about $10 billion higher than February, said Jean-Francois Perrault, the Scotiabank chief economist who resigned in December 2015 from his post as assistant deputy minister of the economic and fiscal policy branch at Finance Canada.

"March always has a big jump in expenditures. It's a chronic thing, happens all the time," said Perrault. "As a result, you always have a pretty significant deterioration in the deficit — if it's a deficit — between the February and March results."

Perrault said the Conservatives were acutely aware of year-end departmental spending binges, yet March spending was still always up.

"That leads me to believe that it's pretty hard to control," he said.

bill morneau
Finance Minister Bill Morneau listens as he's introduced before addressing a Vancouver Board of Trade luncheon in Vancouver, B.C., on Wednesday April 27, 2016. (Photo: Darryl Dyck/CP)

Indeed, Lisa Raitt, the Conservative finance critic and former senior government minister, confirmed in an interview that former Treasury Board President Tony Clement sent stern reminders to avoid "March madness."

Perrault said the auditor general and government financial controller also do year-end adjustments as they reassess the value of government assets and liabilities, a moving target that affects the bottom line.

Another factor this year has been the somewhat puzzling strength in corporate income tax revenue, despite a moribund economy.

"A lot of people expect that to fall pretty significantly in March," after signs of slippage in February, said Perrault.

'Premature to call a surplus'

Corporate taxes are paid in instalments based on the previous year's profits. As the year end approaches, those payments may shrink based on current profit levels or even be rebated, often after fiscal year-end.

"It's always premature to call a surplus until you have March data in, and we don't have those yet," said Perrault.

Kevin Page, the former parliamentary budget officer who currently holds a research chair at the University of Ottawa, said it's a mug's game to argue over a few billion dollars up or down on a $2 trillion economy and almost $300 billion in government spending.

"The (Conservative) government handed over a set of books that were, for all intents and purposes, in balance," said Page.

But that doesn't mean the final tally will be positive or negative.

"Can you say definitively? No. Because you can still get billions of dollars of adjustments on valuations and billions of dollars of adjustments on policy measures."

Policy related changes include the Liberals booking $3.7 billion in future veterans benefits in the 2015-16 fiscal year, while tax changes, an Alberta stabilization fund, Syrian refugee costs and the cancellation of federal sick leave savings totalled $2 billion.

Looking ahead, said Page, the Liberals "effectively inherited a fiscal track that had some small deficits built into it because the economy was weak. And their spending and tax measures are going to add to that deficit."

THE VERDICT

Parsing who's responsible for what portion of a surplus or deficit that will be worth less than half a percentage point of GDP either way is "a tricky one," in Perrault's assessment.

It's a little like handing over the keys to a car in mid trip with half a tank of gas. If it arrives empty, or comes up short, who's at fault?

"If I were to use that analogy what I would say is, whether they go directly to the final destination or they take a different route or make a couple of stops along the way or go somewhere else, is completely under their control," Conservative critic Raitt says of the Liberals.

Driving the federal books $5.4 billion into the red this late in the year will be the Liberal government's responsibility, but that's not the same as saying they inherited a $7.5 billion surplus.

For those reasons, the Conservative assertion contains some baloney.

METHODOLOGY

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:

Baloney Scale Chart

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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