"Facts are meaningless. You could use facts to prove anything that's even remotely true!"
-Homer J. Simpson

Monday, March 26, 2007

Saskatchewan Budget - Surplus or Deficit?

The Sask Party and their lapdogs in the media and the blogosphere are trying to smear the budget that was recently tabled as a deficit budget. The numbers can get confusing and it is easy to point to any given table or chart in the budget and say "Ah ha - this number says they are running a deficit"

Part of the problem is that there are a number of ways that one can say if a a budget is a deficit budget or a surplus budget.


One of the simple ways, that appeals to some people, is the answer to the question "Did you spend more than you took in in revenue?" I personally have some problems and some caveats with this method but let's assume that this is how you want to make your judgment.

Let's take a look at the budget, shall we? (Page 48)

What you are seeing is that last year the government spent 700 million less than it brought in and this year the budget calls for the government to spend 79 million less than it brought in.

So Surplus, right?

Well, this doesn't take into account debt servicing, the fiscal stabilization fund, the Saskatchewan infrastructure fund, crown corporation debt and debt servicing, some payments for the crown corporations to the government through non-dividend means, worker's compensation board issues and so on and so on.

That's why I don't like it and think it is simplistic.

But if anyone tries to claim that the NDP are spending more that they are taking in - that is just completely false.

Debt Increase/Decrease

Another way that people try to determine if their is a deficit budget is to look at the total debt at the beginning of the year and then again at the end of the year. If the total debt went up then it is a deficit, if the debt went down it is a surplus (I am a bigger fan of this method than the last one)

So let's see the budget (greensheets page 1)

You will see that the actual debt in 2006 is $11,228 million and the projected debt in 2007 is $11,150 million which is a decrease of 78 million in debt.

So it's a surplus right?

Well, most economists actually care if the debt is manageable or not when they talk about debt. So we have to look at debt as a percentage of GDP: A decrease in 2% of debt/GDP.

So why is the Sask Party claiming a deficit? This brings me to the third way of looking at budget surplus/deficits
Summery Financial Statements
Let's look at the budget (Greensheets again)

See, they want you to ignore that whole GRF surplus thing of 79 million and they want you to focus on the summary deficit/surplus number at the bottom. That 701 million "deficit"

But it says "deficit" right? So there is a deficit?

Not really. On a SFS basis everything is added together into one pool (al the stuff I was talking about earlier) and transactions BETWEEN branches are ELIMINATED to avoid double-counting. (This is similar in principle to the way economists calculate the GDP of a nation of province - you look at the final numbers, not each step along the way)

However, what this means is that the transfers from the fiscal stabilization fund to the general revenue fund is counted as an expense.

Think about that.

If you are running your household budget and you are a two-income family but the wife transfers some money into the husband's bank account so he can make a mortgage payment - what would you count as the expense?

The final mortgage payment right?

But on a summery financial statement you would have to include the wifes "transfer" as an expense because it came out of her account.

That's not how most people would operate, but from an accounting perspective it is correct.

That's the argument that the Sask Party is making - you have to ignore revenues over expenses, ignore if the debt goes up or down, and simply look at the one number that uses a weird accounting principle.

You also have to ignore the budget documents that show, clearly, a surplus in the general revenue fund.

If that good enough for you? No. Well it is good enough for the Bank of Montreal

The Bank of Montreal agrees with the government that the NDP is running a surplus (14 in a row to be precise) and that the province should get "top marks" for keeping spending in check.

(hat tip: buckdog)

If you want to argue with me on this point - and continue to make the spurious claim that the NDP is running a deficit then you must answer the following two points:

1) Why should we ignore the FSF when determining the status of the deficit/surplus?

2) Where did the Bank of Montreal go wrong in its analysis?