He­laina Gas­pard and Sahir Khan

Most an­a­lysts agree that a key mo­ment in the 2015 fed­eral elec­tion cam­paign was Justin Trudeau’s prom­ise of deficit spend­ing, which dif­fer­en­ti­ated him from the other two par­ties, si­phoned pro­gres­sive votes from the NDP and branded the Lib­eral leader a pol

Policy - - In This Issue - He­laina Gas­pard and Sahir Khan

Bud­getary Bal­ances and Elec­tion Out­comes: More Than Meets the Eye

In the 2015 fed­eral elec­tion, the Con­ser­va­tive Party of Canada based their cam­paign strat­egy on the premise that they would be the party of steady and re­spon­si­ble eco­nomic stew­ard­ship in un­cer­tain eco­nomic times. The cen­tre­piece of this strat­egy was a bal­anced bud­get (and a prom­ise of fu­ture ones), ques­tioned both on the sound­ness of its ac­count­ing and its du­bi­ous value in the con­text of a nearly $2 tril­lion econ­omy.

Notwith­stand­ing ap­par­ent weak­ness in the econ­omy, the Con­ser­va­tives promised sound fis­cal discipline and pro­posed no new spend­ing pri­or­i­ties and plans, pre­fer­ring to stay the course of their ex­ist­ing gov­ern­ing agenda. While echo­ing the Con­ser­va­tives’ mes­sage of fis­cal pru­dence, the NDP pro­posed new al­lo­ca­tions and spend­ing di­rec­tives. They were ul­ti­mately sad­dled by an in­con­sis­tency among con­cerns over the health of the econ­omy, the mea­sures to ad­dress the chal­lenges and the fis­cal con­straint they im­posed on them­selves. Then, there were the Lib­er­als, who more clearly linked vot­ers’ ap­pre­hen­sion about the econ­omy with the prom­ise of more spend­ing (and re­sult­ing deficits), and they won.

This had us ask­ing some ques­tions: Do bud­getary bal­ances im­pact elec­toral out­comes for in­cum­bent gov­ern­ments? Are pre­vi­ous fed­eral elec­tions in­struc­tive in this re­gard? If bud­getary bal­ances do not pro­vide such clues, are there other fac­tors that drive pub­lic con­fi­dence in gov­ern­ments vis-à-vis their fis­cal stew­ard­ship? In con­sid­er­ing these ques­tions, we are re­minded that elec­tions and their out­comes are about a num­ber of do­mes­tic and in­ter­na­tional is­sues. The man­age­ment of pub­lic money is one of sev­eral fac­tors, but we posit that it can be a use­ful lens of analysis.

Look­ing back to the first gen­eral elec­tion with a bud­get to pre­cede it, in 1872, we com­piled the pro­jected bud­getary out­come (sur­plus or deficit) and the in­cum­bent’s elec­toral out­come (win or lose) based on bud­get speeches. Since Con­fed­er­a­tion in 1867, there have been 41 gen­eral elec­tions with a bud­get or fi­nan­cial state­ment as­so­ci­ated with them. Of the 41, 39 have had bud­gets pre­ced­ing elec­tions (for two out­stand­ing cases, there was only a fi­nan­cial state­ment pro­duced in 1958 and no bud­get tabled be­fore the 1963 elec­tion). Across these elec­tions, in­cum­bents were just as likely to win with deficits and sur­pluses, and vir­tu­ally just as likely to lose with deficits and sur­pluses (see Chart 1).

A look at the his­tor­i­cal record sug­gests that planned sur­pluses or deficits are poor pre­dic­tors of elec­toral per­for­mance of in­cum­bent gov­ern­ments.

A more nu­anced un­der­stand­ing of pub­lic fi­nan­cial man­age­ment be­yond bud­getary bal­ances and sur­pluses may shed some light on fis­cal stew­ard­ship.

The re­al­ity is that there is far more to pub­lic fi­nance as a means of un­der­stand­ing pol­i­tics than deficits and sur­pluses. Ac­cord­ing to prom­i­nent pub­lic fi­nance aca­demic Allen Schick (Uni­ver­sity of Mary­land, Col­lege Park), there are three lenses that can be used to as­sess a gov­ern­ment’s pub­lic fi­nan­cial man­age­ment: 1) ag­gre­gate fis­cal discipline (a gov­ern­ment’s abil­ity to bal­ance rev­enue and spend­ing over the eco­nomic cy­cle, which is about more than a po­lit­i­cal ob­jec­tive of a near- term bal­anced bud­get. There is of­ten a con­fla­tion be­tween the po­lit­i­cal ob­jec­tive and the pol­icy ob­jec­tive of ag­gre­gate fis­cal discipline). Over time, the pol­icy ob­jec­tive of ag­gre­gate fis­cal discipline and bal­anced bud­gets can help to mit­i­gate neg­a­tive con­se­quences of debt build-up, i.e. crowd­ing out in­vest­ment, re­duc­ing fis­cal room to ma­noeu­vre, trans­fer­ring debt to the fu­ture gen­er­a­tions, etc.); 2) al­loca­tive ef­fi­ciency (how a gov­ern­ment aligns spend­ing to its pri­or­i­ties); and 3) op­er­a­tional ef­fi­ciency (the cost and ca­pac­ity with which a gov­ern­ment de­liv­ers pro­grams and ser­vices).

To con­sider the nu­ances of pub­lic per­cep­tion of a gov­ern­ment’s fi­nan­cial man­age­ment, we re-frame the 2015 elec­tion plat­forms of the three ma­jor par­ties through Allen Schick’s Pub­lic Ex­pen­di­ture Man­age­ment Frame­work (Ta­ble 1).

Nat­u­rally, the longer an in­cum­bent gov­ern­ment is in power, the more bag­gage it may carry vis-à-vis its op­er­a­tional per­for­mance. Hav­ing been in op­po­si­tion for the pre­vi­ous nine years, the other two par­ties had no such track record to de­fend.

By virtue of its time in of­fice since 2006, the Con­ser­va­tive Party was both helped and hin­dered by its record. While fre­quently tout­ing its per­for­mance on ag­gre­gate fis­cal discipline, the Con­ser­va­tives may have been try­ing to mask the is­sues of op­er­a­tional ef­fi­ciency that had grad­u­ally chipped away at the pub­lic’s con­fi­dence in their abil­ity to be ef­fec­tive fis­cal stew­ards. Ini­tia­tives such as Shared Ser­vices Canada’s fail­ure to re­duce costs of in­for­ma­tion tech­nol­ogy (IT) ser­vices within gov­ern­ment (in fact in­creas­ing costs); or the F-35 fighter jet pro­cure­ment de­ba­cle, where the Par­lia­men­tary Bud­get Of­fi­cer’s and Au­di­tor Gen­eral’s analy­ses sug­gested the gov­ern­ment se­verely un­der­es­ti­mated the cost of the project (Canada has yet to pro­cure mil­i­tary air­craft in its place); or the Deficit Re­duc­tion Ac­tion Plan (DRAP) mea­sures from Bud­get 2012 whereby the gov­ern­ment promised cuts would not im­pact ser­vice pro­vi­sion, when they did (e.g. veter­ans un­able to ob­tain ba­sic ser­vices). With a pub­lic track record of per­for­mance, the in­cum­bent stands to lose the most in an elec­tion.

Fur­ther, it is pos­si­ble that the sheer size of deficits and sur­pluses as well as their some­times oblique re­la­tion­ship to the scale of the econ­omy and its health are less tan­gi­ble man­i­fes­ta­tions of good fis­cal stew­ard­ship than the some­times more ob­vi­ous fail­ures of gov­ern­ment to pro­cure, de­liver and ac­count.

Con­sider the Lib­eral gov­ern­ment of Paul Martin, who as fi­nance min­is­ter in the 1990s ex­e­cuted a sig­nif­i­cant fis­cal con­sol­i­da­tion and cam­paigned in 2006 with the ben­e­fit of hav­ing con­sis­tently de­liv­ered bud­getary sur­pluses. How­ever, the Lib­eral Party could not win re-elec­tion as the long tenured Chré­tien-Martin gov­ern­ment was bur­dened by the dual al­ba­trosses of the spon­sor­ship scan­dal and the gun reg­istry, both is­sues of op­er­a­tional ef­fi­ciency.

It is pos­si­ble that op­er­a­tional ef­fi­ciency plays a sig­nif­i­cant but un­men­tioned role in the pub­lic’s judg­ment in a gov­ern­ment’s pub­lic fi­nan­cial man­age­ment record. Where a gov­ern­ment spends money (al­loca­tive ef­fi­ciency) and the re­sults it yields (op­er­a­tional ef­fi­ciency) can be as use­ful a lens as its abil­ity to bal­ance rev­enues and spend­ing (ag­gre­gate fis­cal discipline).

Cer­tainly, eco­nomic and fis­cal man­age­ment de­ci­sions may lend them­selves to em­pir­i­cal as­sess­ment and quan­tifi­ca­tion in re­la­tion to voter per­cep­tions and the roles of state ac­tors in their de­ter­mi­na­tion. How­ever, more gran­u­lar lev­els of analysis of pub­lic fi­nan­cial man­age­ment cut­ting through pro­ce­dural re­quire­ments, such as fis­cal rules, can shed light on an in­cum­bent’s over­all per­for­mance and op­po­si­tion plans. Cana­di­ans, me­dia and po­lit­i­cal an­a­lysts may wish to con­sider these three lenses to­gether when they’re as­sess­ing gov­ern­ment records and op­po­si­tion party plans dur­ing an elec­tion.

Chart 1: Elec­toral out­comes and bud­get sta­tuses since 1872 (ex­clud­ing 1958 and 1963).

Ta­ble 1: Fed­eral party plat­form as­sess­ment through the pub­lic ex­pen­di­ture man­age­ment frame­work.

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