Stephen Harper began the week by crowing about his surplus. He fancies himself a magician; and so, nothing he says or does is ever what it seems. And such is the case with the "surplus." Jim Stanford writes:
The Conservative government has been criticized (including by the Parliamentary Budget Office) for its routine practice of underspending Parliament-approved budgets in many departments, and approved but unspent allocations were a significant factor in this week's announced surplus. Lapsed funds totaled $8.7 billion in fiscal 2014-15, higher than expected in the budget, and continuing a trend of higher-than-normal lapses. The short financial summary from Finance Canada does not provide details on which departments accounted for the biggest amounts of lapsed funds. In the past, substantial lapsed funds were booked in departments such as including veterans' affairs, youth job-creation, and security. We won't know until the release of detailed public accounts how much was underspent in each area.
Another factor which can affect a small balance (up or down) is the timing of various revenues and expenses, and the treatment of accounting issues like depreciation of public capital. Here, too, we do not have enough information from this summary report to know if timing decisions affected the balance one way or the other. We should note that the government's net debt rose by $4.7 billion during the year, and it had a net financial requirement (to fund operations) of $2.7 billion. In other words, the government was still borrowing money, even though it declared a (paper) surplus. This difference can arise because of accounting treatment of fixed assets, etc., which reduce the apparent deficit even though the government still needs to borrow. The directional gap between a positive surplus and continued cash borrowing, suggests that these timing issues were likely important to the achievement of the "official" surplus -- but again we won't be able to tell for sure until the full public accounts are released.
What is particularly interesting is how surplus EI funds have been used to plug holes:
We can be sure, however, that surplus funds siphoned from the Employment Insurance system account for more than the entire $1.9-billion surplus for the federal budget as a whole. EI revenues exceeded EI expenses by $4.5 billion for 2014-15, according to the Finance Canada summary. That means that for every $1 in bottom-line surplus declared by the government, $2.38 was reallocated away from the EI system. The EI surplus arises because benefit eligibility has been tightened so aggressively, and most unemployed Canadians can no longer qualify for benefits. (At present, under 40 per cent of officially unemployed Canadians qualify for regular EI benefits.) Yet Canadian workers (and their employers) still pay into the system. The resulting surplus becomes a convenient slush fund for subsidizing other government fiscal priorities -- in this case, declaring victory over the deficit in the middle of an election. Without this transfer from the EI program, the federal government (excluding EI) would have recorded a $2.6-billion deficit (approximately equal to what the government originally predicted for the year).
Strange, isn't it? We are officially in recession, yet the government declares a surplus. Which raises the question, "Who does the economy work for?" Something doesn't compute.
