“COVID’s impact on health and human capital formation will increase demand for health and other government services and lower government revenues—effectively accelerating a long-term demographic squeeze on government finances,” said the July 11 report, “Fiscal COVID, The Pandemic’s Impact on Government Finances and Accountability in Canada.”
“These challenges will increase the need for legislators and the Canadians they represent to monitor the capacity of their governments to finance services.”
According to the report, the pandemic resulted in provincial public spending jumping by an average of 7 percent, while federal spending increased by more than 70 percent. In 2020/2021, federal, provincial, and territorial government spending amounted to $1.14 trillion, which was $309 billion higher than in 2019/2020. This resulted in a $368 billion increase in accumulated debts.
While federal direct transfers and indirect support through other programs increased provincial and territorial revenues, “higher expenses boosted accumulated deficits across the board,” said the report, with the federal government in particular “borrowing enough to impair its capacity to deliver services in the future.”
The authors said the pandemic undermined the capacity of governments to deliver services in the future, while also demonstrating the “fragility of fiscal accountability under stress.”
Accountability
In addition to squeezing government finances, the pandemic resulted in several technological changes—such as more remote work and online commerce—that the report said will challenge governments’ ability to collect taxes.While there are mechanisms in place to hold government finances accountable, the budgets and fiscal updates of Canada’s governments have repeatedly under-projected revenue and spending, which, the report said, indicates that “legislators were not getting reliable information, and did not demand better.”
To improve the way revenues and expenses are reported, the authors said governments must show returns on investment as a distinct category of revenue, the costs of servicing their liabilities and market debt, transfers of all kinds and spending on major programs, and gross revenue and expenses, “not netting some expenses against revenues as the federal government does with the GST credit.”
The report said legislators must also be more “aggressive” when scrutinizing expenses before and after they have been incurred. It said the federal government’s decision to reopen its books after the auditor general had already signed off to back-date about $10 billion in spending was a “dismaying bookend to a year that started with no budget, underlining the extent to which legislators lost their will and ability to act as stewards of public funds in 2020/21.”
“More than ever, legislators and voters should demand that Canada’s federal, provincial and territorial governments improve their budgeting processes and their transparency about how well, or badly, they fulfill their budget commitments,” the authors wrote.
“The pandemic prompted increases in expenses that will persist for years and increases in debt that will persist for decades. Legislators and voters should demand more timely and complete fiscal plans, and better accounting for success or failure in achieving them in the future.”
