NDP SUBTRACTED IN PLAN BUT SHOULD HAVE ADDED
$700 million in reserves listed as revenue understates total deficits by $1.4 billion
The Ontario New Democrats’ budget plan understates the deficits they’d run by $1.4 billion a year because it counts a $700-million expense as government revenue.
This isn’t buried in footnotes. It isn’t the obscure error the Liberals crowed about earlier this week in declarations that were about 85 per cent bull.
This is in bold type on page 97 of the NDP platform, in the very final calculation. The hard stuff is done by then. Lines and lines of pricing out the party’s plans for what it would do if leader Andrea Horwath becomes premier after the June 7 election are soaring to their triumphant finish. And then the math zigs when it’s supposed to zag.
This year, an NDP government would take in $153.6 billion and spend $157.6 billion. The difference is $4 billion of red ink — a lot of money, but less than the Liberals would need. Then the New Democrats allow for a “reserve” of $700 million, a margin of error in case unexpected things come up.
But instead of adding the reserve to their deficit and coming up with a total of $4.7 billion, they subtract it to get $3.3 billion.
The NDP platform does the same thing every year for the five years it looks ahead. By the end of a full term, the party platform says a New Democrat government would be running a deficit of $2 billion when it should be $3.4 billion.
(We can only see this because the party went to such trouble to produce a costed platform and share it early. That’s worth something. The Progressive Conservatives have no such document so nobody knows what their budgets would look like. Possibly not even they do.)
Ontario governments have to include reserves in their budgets, under a 2004 law the Liberals passed to show how good they were going to be with the treasury.
“The fiscal plan must include a reserve to provide for unexpected adverse changes in revenues and expenses, in whole or in part,” the Fiscal Transparency and Accountability Act says.
The law doesn’t say how big the reserve has to be. There’s no formula. As finance minister, the Liberals’ Charles Sousa has plugged anything from $600 million to $1.1 billion as reserves into his budgets, depending on both genuine prudence and on political calculations about what bottom-line figures the Liberals wanted to show off.
The thing is, the reserve has to be booked as an expense. If you get to the end of the year and you haven’t spent it, you get to treat it as found money. Spend it, talk about all the money you saved because you’re such great managers, or a bit of both. But when you’re making up your budget, the reserve is money you’re ready to spend if you have to.
The cash might flow out. It would never flow in.
Sousa’s pre-election budget included $700-million reserves for each upcoming year, just like the New Democrats’ platform, but the Liberals did what they’re supposed to do with it: their plan says they’ll spend $6 billion more than they bring in, and then they added $700 million of reserve to the deficit for a total of $6.7 billion.
The New Democrats use the same number but they do the opposite.
“The key difference is the Liberals assume they’ll spend the reserve and we assume we won’t,” explains NDP campaign spokesperson Andrew Schwab. “Which is why we make the assumption we’ll use it to pay down the deficit.
“The Liberals have assumed that they will spend their $700-million reserve on unspecified in-year expenses annually, above and beyond what they’ve budgeted.
“Given we’re facing an operational deficit, it’s our intention not to spend the reserve, and instead use it to pay down the deficit … something the government often does in practice, anyway.”
Ten out of 10 for effort. That’s an OK argument for not including a reserve in your calculations (as the Progressive Conservatives did when making up their defunct People’s Guarantee platform under exleader Patrick Brown). That’ll be a problem when you form a government and run into the law that says you have to have a reserve, but it’s a position a party could defend.
It is not an argument for including a reserve but treating it as income rather than spending. If you could do that, you could stick a $1-billion reserve into your plan and cut your deficit by $1 billion. Or $4 billion. Or $20 billion.
“It is a mistake,” says Kevin Page, the former federal parliamentary budget officer turned scholar at the University of Ottawa, after being shown the numbers by email. “Looks like a spreadsheet type of error. If they wanted to eliminate the reserve, they should have left it at zero — not subtract $700 million per year.”
Page’s Institute of Fiscal Studies and Democracy looked at the New Democrats’ platform for the party and agreed that the estimates for its big-money programs and taxes were reasonable, a seal of approval the party has boasted about.
“We did not examine or have discussion about a reserve when we examined cost estimates,” Page says, and the institute didn’t sign off on the final deficit figures.
So best, the NDP platform books $700 million a year in unspecified savings and hides them in a line that’s supposed to show how careful they are. That would mean they’re smart but dishonest, and frankly it doesn’t make any sense.
More likely, the NDP’s budget makers mixed up their numbers, right before wrapping everything up with a bow, and made a mistake so basic nobody caught it.