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.
Revenue/Expenditure
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?
10 comments:
Because the FSF _isn't_ a savings account.
The FSF is a _line of credit_.
Cheers,
lance
*sigh* That may have been true in the past (although I would argue with you even then) but recently the government has moved from holding the FSF as credit to holding it as Cash.
An actual bank account exists with the money from the FSF in it.
So how is it not a savings account?
In fact, is was partially that decision to move the FSF to a cash basis that prompted one of the latest credit upgrades for the province.
see here
So Lance, my new question is where did the Bank of Montreal AND the Dominion Bond Rating Service get it wrong?
1. In your 1st point you show how the NDP ran an operating surplus. So did Bran Mulroney in his 1st term in office.
2. In your Second point you show that Total Government Debt decreases. This is good except it only is part of the picture. When drawing half a billion dollars from the FSF, or as I like to call it the Election Slush Fund, the NDP have decreased our assets greater than the decrease of the debt. Thus an increase in our net debt of 1 Billion Dollars, pg58.
3. Never say I don't give credit where credit is due. Your third point is solid. As a percentage of GDP our crown debt and government debt decreases. However, this does not include liabilities.
Lets be clear:
A. This is a deficit budget.
B. During a time of strong economic activity and population loss we spent more than we took in.
C. This is a lame attempt to buy the vote by a tired old government which is increasing spending faster than Grant Devine.
Dean in Regina:
Which is it - the drawing of the FSF is "decreasing the assets" as you put it, or it creates a deficit
You can't have it both ways.
If the FSF is an asset then taking money out of it allows the government to balance the books.
If the FSF is an "accounting trick" to create a deficit then there isn't an asset to draw down.
You can't have it both ways.
You can say that it is imprudent to draw down this asset. That's fine. It's a valid criticism (although one I happen to disagree with) but you can't claim that drawing down this asset creates a deficit. That's logically inconsistant.
As for you operating surplus argument (point 1) - I agree.
That is why I said that I don't like using that method but there are plenty of people out there who do.
I look at total debt. If the debt went up - then deficit. If the debt goes down then surplus.
And as I showed above, the debt goes down, both in real dollars and as percentage of GDP.
Oh and by the way - if you are right, then why are all the banks claiming that you are wrong and I am right - are all the charted banks just stupid or are they part of a socialist plot?
1. So are you saying the provincial auditor is wrong when in the previous years he reports that the government ran a deficit when the 'banks' reports show a balanced budget?
2. Are you not worried about our net debt going up 1 Billion dollars.
3. You have 100 dollars in a savings account and you owe 1000 dollars on your student loan. You withdraw 50 dollars from the saving account and pay the student loan down by 20 dollars. Are you better off than you were before?
1) The provincial auditor's problem with the previous budget was that the FSF was not done on a cash basis. That is not longer the case
2) What are you talking about? On a summary basis (you know - the kind you keep talking about?)
2006 Debt = $11,228,100,000
2007 Debt = $11,150,400,000
(Source: Budget Greensheets)
The debt is going down, not up.
3)If you take out $50 from your saving account and spend $20 paying down the student loan then where doe the other $30 go?
If your answer is "you spent it" then what is the problem? You got $30 worth of goods or services.
I have now answered your question about the auditor, just like I answered lance's comment about the FSF credit/cash problem.
Will you answer the only question that I have asked - Why are the banks all claiming that this is a surplus - are they wrong?
Ref 1. Accurate reporting of government finances is not a 'problem' for the provincial auditor. It is only a problem for the NDP who want to create the illusion that they are not running deficits during times of economic prosperity. A deficit is defined as when expenses are greater than revenue. Taking money out of the FSF doesn't not balance the books.
Ref 2. You refer to total government debt. That is different than net debt. Net debt is government debt plus liabilities minus assets. It has gone up 1 Billion dollars. Do you think this is good?
Ref 3. You talk about the debt going down as a good thing. However, my third point was that you have to look at the big picture. You can't just look at total debt. Paying down total debt while our net debt goes up means we are in a worse financial position than we were before the budget. Just like paying off the student loan less than the amount you withdrew from your savings account means your in a worse off position.
4. At this time I am currently unaware of the criteria the BMO used when it created its report. It would be interesting to see their definition of 'balancing' the books. Obviously it allows taking money out of the FSF to ‘balance’ the books.
I guess we will have to see what the auditor says now that the FSF is funded on a cash basis.
Debt is bad if you don't get anything for it - debt is good if it allows you to finance capital purchases. For example - a mortgage is debt but it is good debt. Just like all the one-time spending that a government does on roads, hospitals and schools. That is why I look at total debt.
I still don't understand your weird student loan analogy - the numbers don't add up.
At the end of the day - I trust the Bank of Montreal and the other chartered banks to make a judgment about what is a surplus and what is a deficit. They have no stake in the NDP and - if anything - are hostile towards us.
They are the ones that actually loan the money to people and determine credit ratings and so on so if it good enough for them then it is good enough for me.
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