09 February 2015

Reforming the budget process #nlpoli

We already know that the provincial government won’t unveil its budget for the new year until late April or early May.

That’s not as unusual as it might seem.  In 2012, for example, they introduced the budget on April 24.  Five years before,  Tom Marshall read the budget speech on April 26.  The next year – 2008 – Tom again read the budget speech in the House in late April,  the 29th to be exact.

The fact the Conservatives aren’t planning to release the budget until a month or so into the new fiscal year – it starts on April 1 – isn’t surprising.  It isn’t unusual.  And odds are very good it isn’t related to the fact the federal government has delayed its budget until around the same time.

The Budget Cycle

Once upon a time, not so very long ago,  the provincial government relied on the federal government for to make up half its budget from different kinds of transfer payments.  The provincial government sometimes delayed its budget by a few days or weeks back then because they needed the official, final number from the federal government in order to finish the provincial budget.

Notice that it was the final, official number.  You see,  the provincial and federal governments trade financial information all the time.  The provincial government gets almost $700 million a year these days from Ottawa.  Even though the provincial government doesn’t get its biggest transfer anymore, namely the one from Equalization,  that’s still a nice chunk of the annual budget.

That’s one of the reasons why the governments share information about their annual budgets.  Now that Newfoundland and Labrador is a have province,  they aren’t really as sensitive to changes in federal transfers,  even with huge budget deficits.  They wouldn’t need to delay the budget by any great length of time because of the federal budget.

After all, its not like the province has to hold up everything until they get the federal cash figures. They didn’t even do that back when the feds provided half the provincial budget revenue. The provincial government budget cycle starts sometime in the fall. They are about halfway through the financial year at that point and they can make some decent projections about how much money they might need and might have the following year.

The budget process starts with the big numbers and over the course of the next few months they work their way farther and farther down, until they start talking line by line. By the time they get to that point,  there’s not much that will change in a typical year. They are arguing over fine amounts of money at that point and those discussions usually come at the same time as government is looking at progressively better and better forecasts of how much money they can spend.

Managing Public Opinion – the Consultation Sideshow

The Conservatives inherited the annual budget consultation from the Liberals.  They started under Brian Tobin and have carried on ever since.  They have nothing to do with the budget process, really since the major decisions have all been made by the time the finance minister heads off to Hotel Whatever to sit for a couple of hours listening to the same presentations over and over.

They really are the same presentations. Most often, groups and sometimes individuals go along and make a plea for more money. In years when things are tough, the groups will make a plea to hang onto whatever money they already have. 

A group that really wanted to get money into the budget needed to deal with the politicians and the bureaucrats some time before that.  They’d have to meet in private and make a pitch.  If they got a positive reception at the lowest level, they’d work their way up the ladder until the found the folks, usually at a cabinet committee level and ultimately in the Premier’s Office, who make the real decisions about what goes in the budget.

Everything else is bullshit, including the budget “consultations.”

Most of the people who take part in the consultations know they are a public wank-fest.  The government folks nod and smile at the crowd from the board of trade or the union and they nod and wink back.  The value in the thing for both sides is the media attention.  The groups get to put on a show for their members:  here we are speaking on your behalf to the mighty and the powerful. The finance minister and his political crew get to look like they are listening.

The government crowd aren’t just passive vessels waiting to be filled up with all that they have listened to.  They also use the consultations as a way to send messages. Tom Marshall used to love talking about the public debt. 

One year he even carried around an electronic sign that showed the provincial debt.  Gotta be careful about how much we spend,  said Tom.  It was the year after the government got a huge windfall from high oil prices.  Tom was so concerned about debt during the consultations, you’d have sworn to heck he would be paring things back to the bone.

In 2008, after his debt lecture and all the consultations were done, Tom read a budget speech that forecast he would overspend by almost $800 million on a cash basis.

The Kentsultation Innovation

Some people wondered last week why finance minister Ross Wiseman wasn’t already on the road for the annual budget consultation farce.  These people didn’t call it a farce, but that’s what it is. Wiseman’s reply was that the Office of Public Engagement was working on a new web-based idea.

There are all sorts of novel things they might do like collect e-mails or provide a ready-made form for people to fill out.  If you didn’t get the sarcasm in that, there was plenty.  The OPE is just another version of the old-style government effort to make it look like they are gathering public input when they really aren’t. They are controlling it. There’s no surprise that the OPE brings together all the old initiatives like the Rural Secretariat into one spot.

They’ve also created a new one or two,  like the open government initiative.  Check the website for the last one.  Lost of lovely slogans.  Big pictures.  There’s a space where you can “have your say.” and then another one where they repeat that stuff back to you in  “what we heard” is.  It fills up lots of space.

But when you check the practical result, you won;t find very much beyond information that government already made available electronically.  Other information, like the chief electoral officers poll results and financial reports are locked up tight.

When it comes to the province’s financial state,  you also won’t find any information that will help you.  And it would be very surprising if the gang at the office of public engagement gave you information they have but haven’t already packaged up.

Channelling the Discussion

Like, for example, the financial projections they are using to make budget decisions.

Or the actual month-by-month spending performance for the provincial departments.  They’ve got it.  They just won’t let you see it.  They won’t let anyone see it.

What they provide, instead, is a mid-year financial update that appears in most years about three months before the end of the fiscal year.  Even then the information is incomplete.  They only report the gross totals for spending and income.  They talk about the big picture shifts and changes.  And they leave out income sources that they often underestimate.

The advantage of that approach is that the provincial government can manipulate the conversation about the annual budget rather than get sincere feedback based on actual details. You don’t have to go back very far to think of an example. Remember Jerome Kennedy and the $1.6 billion deficit? 

Or was it $900 million three weeks later?

Or the $563 million forecast at budget time.

Or was it the $350 million they wound up with at the end?

The $1.6 million was a fiction, at least it was a fiction the way Kennedy presented it. By budget time,  news media would write that Kennedy was a miracle man, having projected a $1.0 billion improvement to the government’s “bottom line.”  Now the deficit was only $563 million.

What really happened was that the provincial government reorganized the province’s school boards down into a massive English language one and a smaller French-language one. That was huge change that vanished from public discussion behind the threat of layoffs.  Even that layoff number turned out to be less than advertised.  In the justice department, as it turns out, they eliminated positions that had never been staffed.  After some controversy,  they actually wound up hiring more people to fill positions they should have eliminated.

As much as the justice fiasco showed up some serious problems in the ay the government produced its budget that year,  the public discuss never got to grips with what the government was thinking about or really what the issues were.  People found the $1.6 billion deficit figure appropriately shocking. They understandably relaxed quite a bit as the number got smaller.

By 2014,  with the financial situation presented as being much rosier, they forgot all about the problems.  Well, forgot, until the collapse of oil prices part way through 2014 and the resumption of the financial crisis.

What the government does each year at budget time is control information.  They control the frame – the interpretation – to information.  Think of the idea the budget problem is the price of oil, not that government deliberately spends too much money.  That’s a frame. They get lots of help in their efforts, mostly from the lack of independent commentary.  The local news media tend to do a poor job of it.  Many of them rely on Memorial University’s Wade Locke, for example, even though Locke has served as a paid and unpaid consultant for the provincial government and its various agencies for most of the past decade.

The result is that the discussion is always about what government wants and never about what they are talking about, in private, behind closed doors. The public conversation is never about the real financial state or actual government decisions.  It’s about something else.  Meanwhile,  government carries on with its own plans.

Independent Financial Information

Newfoundland and Labrador isn’t the first place to run into a problem  with this. The United States Congress created the Congressional Budget Office in 1974 to serve as a non-partisan source of information to both Houses of Congress – the Senate and the House of Representatives  - about the government’s finances.

In the United Kingdom,   they have a thing called the Office for Budget Responsibility. The OBR produces “five-year forecasts for the economy and public finances twice a year. The forecasts accompany the Chancellor’s Budget Statement (usually in March) and his Autumn Statement (usually in late November) and they incorporate the impact of any tax and spending measures announced by the Chancellor. The details of the forecasts are set out in our Economic and fiscal outlook (EFO) publications.”  The OBR also uses those forecasts to judge the governments actual performance.

Austria,  Belgium, Denmark, France, and Hungary all have similar independent financial oversight bodies serving their legislatures. In Australia, they have the Australian Parliamentary Budget Office  Established in 2012,  the “role of the PBO is to inform the Parliament by providing independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of proposals.”

In Canada, the federal government has a Parliamentary Budget Officer. The PBO provides “independent analysis to Parliament on the state of the nation's finances, the government's estimates and trends in the Canadian economy; and upon request from a committee or parliamentarian, to estimate the financial cost of any proposal for matters over which Parliament has jurisdiction.”

Take a look at what the federal PBO has done this year and you can see the advantage of offering to the House of Assembly a second set of financial eyes.  The federal government will have a problem this year due to falling oil prices.  The PBO looked at two scenarios.

Even if the scenarios are dated,  you can see the value of having a genuinely independent source of information. It helps people outside government have a good idea of what is going on. The information may be different from what the government is using. That doesn’t mean it is wrong. The parliamentary budget officer might have similar information but reach a different conclusion. That’s the way these things go. The key thing is to have a second opinion. It gets much harder to make a fundamental mistake of you’ve got a second opinion about something.

In Newfoundland and Labrador over the past decade,  the political opposition parties have tended to rely on government officials as their only source of credible information on anything that comes up in the House.  They’d have a much harder time doing that  - even if they really wanted to - if an independent agency like a provincial budget officer issued a report that took credible issue with government officials and their assumptions. 

The result would be much worse for the politicians. They wouldn’t be in control of the agenda any more. They’d have to answer tough questions with hard information.  Such a situation would be tough on the politicians but for the people of Newfoundland and Labrador, it would be like the dawn of a new day.

The new day would be one of genuine openness, transparency, and accountability.