Go faster, faster! Spend!

What are we to make of the Parliamentary Budget Office’s latest update on federal spending? The one, as reported in the Post, that shows Ottawa’s actual spending not keeping up with its promises? As the office says, in the first half of the current fiscal year — the second and third quarters of 2016 — spending was up just 3.7 per cent, compared to a budgeted increase of 5.6 per cent. This was “owing to delays in implementing the Government’s economic priorities, in particular new infrastructure investments… Tellingly, infrastructure transfers administered by Transport and Infrastructure Canada fell in comparison to the previous year ($0.1 billion)” — this just after a big, brassy infrastructure budget.

The PBO is worried that because of delays “there is a growing risk that money the Government originally expected to be spent in 2016-17 will be deferred to subsequent years.” Many of the rest of us probably don’t find that so worrisome. When the government doesn’t spend money it has budgeted, it calls that a “lapse.” Given the scale of government spending these days, many taxpayers wouldn’t mind more such lapses, in fact as many lapses as possible.

In 2008, some of us suggested, only half-jokingly, that the best response to the financial crisis would be for the government to announce massive new spending plans that would reassure a public frightened that aggregate demand was collapsing all round them and taking the economy with it. Then, once reassurance had set in and the panic had passed, don’t actually do the spending. Why would you carry through? The spending’s main purpose was easing fear and the announcement itself would have done that. It’s not a tactic you can use very often, since not having carried through on spending last time will tend to reduce the credibility of your spending announcement next time. But if you save it for a really rainy day, as 2008 was, maybe announce-andrenege could work. (We can argue about whether people really should be reassured by news of lots of new government spending. Maybe that’s irrational. But many people do still seem to be instinctive Keynesians and would in fact welcome government cavalry riding over the hill to rescue the economy.)

In the end, that strategy wasn’t adopted in 2008-09. The Harper government announced big new spending, in large part to calm people down, but then it actually went ahead with the spending and, in due course, or a little longer, cut back on it, as it had promised to do. We can and should argue whether fiscal stimulus really ever works but, that rather important question aside, the HarperFlaherty stimulus was done roughly the way the textbooks recommend.

But now, in 2017, an announce-and-renege strategy wouldn’t be appropriate. Renege might be nice. We could do with less federal spending. But announce really isn’t required. Yes, we are, or were, in an economic downturn, mainly because of falling oil prices, but we aren’t in an economic panic, as we were in September and October of 2008. Now the effect of big federal deficits isn’t reassuring, it’s alarming. As a recent report from the Department of Finance made clear, pumping up the deficit now mainly means it will never go away. In 2008 the “announcement effect,” as economists call it, may well have helped. In 2017 it almost certainly hurts.

Do we at least get the renege bit? Not likely. Even the buttoned-down Harper government had trouble getting infrastructure spending out the door quickly. The Harper precedent leads the PBO to conclude the Trudeau government eventually will get its infrastructure spending done, too. It does consider the possibility it won’t, however. Noting that provincial infrastructure spending is fairly flat, even though much new federal spending is designed to juice provincial spending, the PBO suggests “new federal spending could be simply backfilling existing provincial investment plans, resulting in a smaller than initially anticipated surge in infrastructure spending.” If so, new federal infrastructure money might simply free up provincial moneys for spending or even tax reductions (unlikely, I know, but it’s at least possible!) that the provinces want more than infrastructure. Critics of the first Trudeau budget argued that infrastructure is now defined so elastically almost anything qualifies. But if money is fungible, and it is, even narrowly defined federal infrastructure money could end up financing provincial spending on literally anything.

In the end, the PBO thinks the problem may simply be “the limited capacity among staff to manage an increasing workload,” and that, perhaps two quarters later than planned, the money will get spent. Maybe perceived limited capacity is why 2016 showed the first increase in overall federal employment since 2010. That probably should have been the PBO’s headline.