How to spin a $3.9 deficit as a $2.6 billion surplus

George Orwell defined “doublethink” as the act of people simultaneously accepting two mutually contradictory beliefs as correct.

DEREK FILDEBRANDT

Alberta Director of the Canadian Taxpayers Federation

George Orwell defined “doublethink” as the act of people simultaneously accepting two mutually contradictory beliefs as correct.

“Doublethink” would therefore be an apt description of how Finance Minister Doug Horner can declare Alberta is running a $2.6 billion “surplus” when the government is in fact spending $3.9 billion more than it is bringing in.

If you told your financial manager that you are earning $60,000 a year, but are spending $80,000, he would probably tell you that you have a problem. A deficit, in truth.

But, you say, you’re spending $20,000 on your mortgage, car loan and line of credit for home renos. Your $60,000 income covers slightly more than all of your day-to-day spending on things like groceries, gasoline and entertainment. You have a small “operating surplus.”

This is the logic behind Mr. Horner’s claim that Alberta’s latest budget will run a $2.6 billion “operating surplus.” Alberta is paying for the day-to-day spending of the government, but not all of its spending.

And that $20,000 you’re spending on your mortgage, car loan and line of credit for home renos? Well that $20,000 gap between your income and expenses might be borrowed, but it’s going towards assets, and those assets are theoretically worth $20,000. In the end, it all balances out, right?

This is the logic behind Mr. Horner’s claim that the budget also presents a $1.1 billion “consolidated surplus,” or technically, an “increase in balance sheet assets.” By this logic, government is allowed to borrow, and just record the value of assets built against the money owed.

It’s as if the money was never spent.

Unless your financial advisor works for MoneyMart or CashMoney, he’d tell you that you cannot go on borrowing and increasing your debt load in perpetuity. You have only two options in the long term: make more money or spend less of it.

Mr. Horner decided in this budget to do precisely the opposite: increase non-flood related spending by a whopping 6.9 per cent. And unlike mortgages that families work to bring down every year, Alberta’s debt will explode from $8.3 billion right now, to $13.4 billion in 2014-15, $18.1 billion in 2015-16 and $21 billion in 2016-17.

Governments can get away with this because in the end, financial mismanagement is somebody else’s problem. In four years, the worst that can happen is that they are voted out and reincarnated as a lobbyist. But when families let their debt loads get out of control, they have to live with real consequences. Politicians can let the problem pass to their replacement to fix it, and future generations to pay for it.

So what really is Alberta’s deficit or surplus? The Wildrose Opposition calculates that it is a $2.7 billion deficit, Dr. Jack Mintz projects a $1.8 billion deficit. The government says both a $2.6 billion and $1.1 billion surplus. The Canadian Taxpayers Federation (CTF) and the Liberal Party put the number a $3.9 billion deficit this year.

Thanks to strong natural resource revenues and an extra $1 billion in federal health transfers, total cash revenues for the province will likely reach $42.9 billion, barring any major economic changes.

On the spending side of the ledger, the government will spend $39.4 billion for its regular operations, endowments and disasters and $781 million to pay interest on the debt.

But here’s the kicker. The government will borrow $5 billion towards $6.6 billion in spending for capital projects. Since that $6.6 billion is purchasing assets, the borrowing to support it, doesn’t really count in the government’s mind.

All told, the province is on track to spend a grand total $46.8 billion in Budget 2014-15.

In the real world, revenue of $42.9 billion and expenditures of $46.8 billion equals a deficit of $3.9 billion.

The government spending $3.9 billion more than it collects, but calling it a “surplus” is not only fantastical spin, it’s “doublethink.” That is, if they even believe their own numbers.

 

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