Surplus budgeting now framed as taxpayer benefit

What was bad under the Liberals becomes good under the Conservatives. In both cases the surpluses would allow more social and infrastuctural spending but it does not seem to be used for that. I find it a bit odd that having a surplus is bad fiscal management. It is surely a benign mistake and the surplus allows the govt. to fund discretionary programs that it might have cut earlier. Of course the Conservatives do not use surpluses in that manner since they are for smaller govt. and less govt. expenditure...oh except for crime and the military. THis is from the Harper Index.

Surplus budgeting now framed as taxpayer benefit

"Surprises" once scorned, now provide excuse to avoid social spending.

Last week finance minister Jim Flaherty released the Annual Financial Report for 2006/07, revealing a federal budget surplus of $14.2 billion. For years the the Conservatives condemned Liberal surpluses as phony surprises. So the irony of the Conservatives bringing in a surprise surplus was not lost on observers. News reports contrasted old clips of Stephen Harper on the subject with what the government said last week and can be expected to say in the throne speech.

While campaigning in 2005, Stephen Harper said "When surpluses appear out of thin air, I think that's a sign of bad fiscal management or, even worse, dishonest fiscal management," Dan Cook reminds Globe and Mail readers. In 2007 Harper claims his own surpluses are a result of "sound management".

Reports focused, as well, on the Conservatives' pledge to put any surpluses into debt retirement and to use the reduction in interest payments to fund new tax cuts.

Putting the surplus against the debt will reduce income taxes by $700 million annually, writes economist Erin Weir of the Canadian Labour Congress. "This tax cut will barely put a dent in federal income taxes, which generate nearly $110 billion per year."

Weir estimates the savings per taxpayer of about $35. "They would have cut income taxes by that amount anyway."

Less attention, however, was given to the costs of this large surplus.

"As in years past it means that social and environmental priorities, like fighting poverty and homelessness, or meeting the challenge of climate change, have been left off the table by deliberate understatement of available surpluses," writes Marc Lee of the Canadian Centre for Policy Alternatives in Vancouver.

"Even if you accept that this was a 'surprise' there is no reason why that money (perhaps with the exception of the $3 billion committed to debt reduction in the original budget) could not be put into a fund for capital projects (social housing or transportation infrastructure, perhaps) or even into a fund that would support future operating expenditures (for, say, early learning programs)."

Weir says "In view of the fact there are these pressing unmet needs for social services, this inaccurate forecast is not only depriving programs of needed money but also stifling a democratic debate about how to use fiscal capacity that is available for the government."

Weir writes that the Conservative pledge to return interest saved on debt reduction could be, at worst, "an inappropriate constraint on future budgets."

He is concerned that this pledge, combined with a commitment adopted by the Jean Chrétien Liberals to repay at least $3 billion of debt annually, "effectively mandates a corresponding minimum level of income-tax cuts in every budget regardless of changing fiscal circumstances. If future revenues are less than projected, the government might 'need' to cut spending in order to fulfill its 'guarantee'."

He believes surpluses like these are deliberately engineered. "The fact the error is always in one direction and pretty far in that direction suggests forecasts are being done in such a way as to understate surpluses," he told HarperIndex.ca, citing a group of independent forecasters who came to that conclusion a year ago in a study.

"The government's messaging is to connect the dots between debt repayments and tax cuts," said Weir. "The Conservatives were very critical of the Liberals over surpluses. Now that the Conservatives are doing the same thing they're trying to turn what might be a bad news story into a good news story."