One of these Provinces is Not Like the Others...

Statistics Canada has released its provisional estimates of Canadian Government Finance Statistics (CGFS) for the period 2008 to 2012.  This is a move away from the Financial Management System (FMS) data that was previously published by Statistics Canada. 

As described by Statistics Canada: “The FMS was founded on a modified-cash based system of accounting. In recent years, Canadian governments have moved from a modified-cash based accounting system to an accrual based accounting system. As such the statistical system underlying government finance statistics must also change. Statistics Canada has decided to move towards reporting government finance statistics on a Government Finance Statistics 2001 basis. The GFS 2001 is an international accepted accrual accounting framework for government finance statistics. The GFS 2001 is also fully integrated with the United Nation's System of National Accounts framework.”

Well the result that really caught my eye was the gross operating balance.  The gross operating balance is equal to revenues less expenses (excluding consumption of fixed capital).   As the chart below shows, Ontario is definitely exceptional according to the new numbers with a cumulative gross operating balance between 2008 to 2012 head and shoulders above the rest of the provinces and territories.  Over the five-year period, from 2008 to 2012, the Ontario provincial government (which includes core general government plus autonomous funds and organizations, such as Workers' Compensation Boards) accumulated a gross operating deficit in excess of $80 billion – 84.345 billion to be precise.  The next largest gross operating deficit was British Columbia at -$8.177 billion. Newfoundland and Labrador, Quebec, Saskatchewan and the three territorial governments apparently reported a gross operating surplus for the same five-year period. 

 

While I dabble in public finance, I am not a public accounting specialist so I cannot comment on how these numbers are constructed and exactly what they are measuring.  They are also provisional.  However, the usual examinations of debt and deficits usually put Ontario and Quebec together in similar territory whereas this makes Quebec a paragon of fiscal virtue.  Even with a population adjustment by converting to per capita, Ontario does not look particularly good.  I am really interested in how Mr. Sousa is going to respond to this one.  These numbers would have been even more entertaining if they had been released before Ontario’s fiscal statement.

Comments

[crf]

Ontario has low taxes. For any level of spending, the public has a choice to apportion this cost between debt and taxes. Ontario decided to keep its taxes low, and borrow.

Furthermore, Ontario has low government spending per capita compared to most other provinces.

So please explain "fiscal virtue". Does your definition take into account the actual level of government spending, or its economic effects? It's change over time, or against underlying economic fundamentals?

[Livio Di Matteo]

Crf:
I do not really understand your question. When deficit and debt comparisons are made, Quebec is usually worse than Ontario. In these numbers, Quebec has managed a gross surplus over the 2008 to 2012 period despite also being hit hard by the Great Recession. Hence it is a "paragon of fiscal virtue" especially compared to what I would have expected.

[Majromax]

Very interesting, I'm happy that Statistics Canada finally put this out. It appears that the gross operating balance does not include depletion of fixed capital; I don't have any intuition whether including that for the net operating balance would make much difference.

The per-capita figures (calculated by hand) are also interesting. It appears that still, Ontario collects less per-capita revenue than AB, BC, and QC (only ones I checked).

Compared to the other provinces, Ontario had a substantially greater expenditure in 2010 than in other years, but the per capita expenditures also subsequently declined to more normal levels.

Far from any simple story, it appears that Ontario both under-taxes and (slightly, as of 2012) over-spends.

[Jacques René Giguère]

A paragon of financial virtue? If you mean underpaying your staff so you can't recruit...Been doing overtime for years on row.(not for the money, just so that students can graduate...)

[crf]

How do you know it is virtuous to run surpluses, in a fiscal sense or any sense?

[Bob Smith]

"Far from any simple story, it appears that Ontario both under-taxes and (slightly, as of 2012) over-spends."

The awkward thing for Ontario is that taxes its low and middle income earners far less than other provinces (at least in terms of income tax). That may be good politics, but it makes for dubious fiscal policy. Consider that the bottom tax rate in Ontario is half that of most other provinces (with the exception of BC). If Ontarians taxed low incomes (i.e., incomes under $40K a year) at the same rate as Alberta it would raise a ton of tax revenue (orders of magnitude more than the recent increased tax on the "rich") and would make a hefty dent in the provincial deficit. The problem is that the parties that are keen on maintaining current spending aren't keen on serious means of funding that spending.

I got a kick out of Charles Sousa's proposal outlined in the Globe on Monday: "Mr. Sousa also announced a plan to crack down on tax cheats and contraband tobacco to raise more money for the treasury. For instance, the government will now make sure it checks that businesses receiving handouts from taxpayers are actually paying their taxes, Mr. Sousa announced."

Am I alone in thinking that maybe, instead of ensuring that recipients of government handouts pay their taxes, just stop giving them handouts? It's like watching the 90-lb weakling at school who's happy to give the bullies his milk money, so long as they give him a fraction back. Sob!

[S]

Do you think this new framework would have any future implications for how equalization payments are determined?

[Pelinoc]

Some of the challenges with these kinds of "net" statistics have already been mentioned by others, but two things in particular that are obscured are: a) federal government fiscal redistribution is buried; b)the impact of natural resource royalties.

Ontario has argued for years that federal redistribution policies are biased against it. The latest figure claimed was $11 billion per year. If that were remotely true, then Ontario's "own source" gap could be much smaller, and the gap of certain other provinces much larger. I am not arguing on the validity of the claim, only that the net figures obscure the argument.

Several provinces benefit enormously from natural resources revenues (Alberta, Saskatchewan, and Newfoundland in particular). This is not to say that other provinces don't also have natural resources (mining in Ontario and Quebec, forestry in BC, etc.), only that the run up in global oil prices over the past 15 years has had very significant consequences on provincial budgets for reasons that have nothing to do with domestic policies. Given the declines in oil prices this year, and the potential for that pullback to be sustained for a few years, it would be interesting to compare the performances again five years from now. That might highlight the degree to which provincial fiscal policy choices are just responding to external realities (or not).

It would also be interesting to compare the per capita revenues of provincial governments on a finer basis: per capita income taxes, payroll taxes, corporate taxes, natural resources revenues, and federal transfers. That level of detail would allow for more incisive policy discussions. I personally have not seen that level of comparison, but it might be out there somewhere.

[Majromax]

> It would also be interesting to compare the per capita revenues of provincial governments on a finer basis: per capita income taxes, payroll taxes, corporate taxes, natural resources revenues, and federal transfers.

That data is there in the respective CANSIM table, so it should be possible to truly look at it. That data breaks down taxes on income, property, and goods/services. The provincial sales tax, for example, shows up as code 1141, "General taxes on goods and services". (Alberta doesn't have one of those, but it does collect substantial excise taxes and revenues through provincial monopolies.)

It doesn't specifically break down inter-governmental grants, but I think we can make the reasonable assumption that provinces receive almost all of their government grant money from the Federal level.

[Pelinoc]

I just looked at that CANSIM table. Lots of good stuff there, thanks! Turns out that resource royalties are buried in "other revenue" sub "property income" sub "rent", whereupon it is broken down into oil & gas, minerals, forestry, etc. Same sort of story on transfers from Ottawa; it's there, but buried down in subclasses. Quick observation of Newfoundland was that oil royalties went from incidental to 13% of revenues between 2008 and 2012, so there really is a significant impact, as suspected.

Per capita analysis comparing provinces requires a certain amount of data mining and number crunching, but it is certainly doable with what is available on the StatsCan site. A potentially useful project...

As noted, the data does not include any information on depreciation (which is why it is gross rather than net balances). Capital spending in the broader public sector (such as provincial contributions to hospitals or sewer systems) is already captured in a deep subcategory of "other expenses", but capital spending for direct provincial government facilities (such as courthouses, prisons or government buildings) is not captured, and should be part of that future more complete release. As usual, data just leads to a desire for more data...

[The Keystone Garter]

AB is $46B in the red this yr, at $80 oil.
I wonder if INS will force the aliens to pay taxes if they don't want to (Macleans ads freezing me).
The aliens do not like tax cuts for deficits.
I wonder why the Quebecor Sunmedia columnists are so hard on rock alternative. Oceania's vocals are about The Oddysey, and the instrumentals are about the War of 1812: The Greatest cdn song of all time. Describe Lake Ontario being an initial vulnerability, Mississippi vulnerable on both ends, and Eastern Seaboard being a resupply line impossible to take. Describe it it would've been hard to stop 20th century European Dictators if an unending war.
The $46B kills this chart. Ontario shouldn't subsidize Catholics.

[The Keystone Garter]

...wish I knew the source for that bad figure based on $80/barrel oil; I don't see anything like it on a google news search. It seems an automatic stabilizer is the easiest way for a resource Province to stay near the black. ie) If a deficit is above $1B or 1% of your provincial budget, increase resource taxes to compensate the following year. It isn't great as it might be pro-cyclical a bit and provinces have to deal with unemployment and migrations and capital project construction inflation...but it is simple enough for their Liberal or Greens to adopt.
ONtario is subsidizing their Catholic schools. Too me, it seems like a political religion that will tie up Ontario's long-term fate with Italy's. I don't see the point of romance at all now; it was a great quality-of-life gain in the 11th century as a motivation to do more than serve the authors of the Bible. But it promotes political corruption. The parts of Canada that won World Wars were founded on the Scottish Presbyterian Church, The Anglican Church, and one other. In spite of the fairy tales, these churches taught a good work ethic in this world.

[Jacques René Giguère]

"The parts of Canada...": happy to learn the Vandoos were Anglicans...

[The Keystone Garter]

...A problem with macro only analysis is you miss the micro solutions and existing macro players can afford their own analysis employees. It was the last Roman in the 5th century who told Monasteries to copy documents. The content wasn't the best Greeks like Thales or Democritus whose followers lost their induction method arguments, but Aristotle was respected enough by Christianity to be preserved and he said induction is good sometimes. Later, Alcuin from York and his ilk Irish Hermits, schooled Charlemagne, who extended the goal of Monasteries to include teaching a curriculum, and R.Bacon recaptured the induction always spirit which was accepted by the English gvmt. Later all the Scholars came to Scotland and gave birth to economics, IR, and modern ethics.
The Catholic Church and most of France could not withstand invasions from the East and became trapped in the balance of power. That is why the Scottish city of Wpg advanced farthest on Normandy, withstood a gas attack, took the Cup from Quebec, gave rise to Intrepid, and won the most Victoria's Cross medals. And why a Wpger today might have won one in WWI because he isn't afraid to perish for a better (world).
You can be good but not great unless you get rid of a religious interpretation of utilitarianism. Wpg fought hard to kill the Catholic curriculum and it has been for the better. Duplesis would not have been tolerated by a Protestant faith....my prescription is to cut the Catholic School subsidies. Any other ideas are welcome. I like developing a space satellite industry in MB to complement aerospace, AB to transition to Green petrochemicals which are in long-term demand and potentially renewable...the Germans are still learning Solipsist any-behaviour-is-good Schopenhauer.

[Jacques René Giguère]

KG: week-end assignment: compare the speed of advance of Bavarians Gebirsjägers vs Pomeranians Grenadiers. Don't forget to denounce the Pope as the AntiChrist and my day will be complete...

[Determinant]

I want to see Keystone Garter explain Modern Monetary Theory. <-};)