Spin Cycle: The contribution of lapsed spending to deficit slaying

"What happens when Stephen Harper's government underspends is he makes commitments to veterans, and First Nations, and others — and then doesn't keep those promises so that he can balance a paper budget in time for an election campaign."  — Liberal Leader Justin Trudeau, Sept. 14, 2015

Rarely has such attention been paid as to whether a particular budget was in deficit or surplus — but the Conservatives have long hinged their re-election strategy on black (ink that is), so here we are.

The official number for fiscal year 2014-15 is a surplus of $1,911,000,000.

By any measure, that's a slim surplus for annual spending of some $280 billion.

It also means that the fact the government left $9 billion in direct program spending unspent certainly is a contributing factor in the balancing act.

But is it fair to say the budget was balanced through "broken promises"?

The spin

Trudeau points to the "billions and billions of dollars unspent on programs last year" as a sign the government has broken its promise to all the individuals that were counting on services that, he is presuming, were underfunded and therefore not provided.

Had that money been spent, the logic goes, the government would have posted a $7.1-billion deficit last year.

"The Finance Department's own numbers talk about billions of dollars unspent on programs in the past year," Trudeau said. "And we won't find out what was unspent until after the election."

Details of which departments handed back the most money won't come until after Parliament resumes sitting — which will indeed be after the election.

Past years, however, do give hints.

NDP Leader Tom Mulcair, for example, cited the $108 million that had been earmarked for the Immigration and Refugee Board, including $25 million to help resettle refugees, but lapsed the previous year.

The counter-spin

"That's absurd," Conservative Leader Stephen Harper says bluntly of the charge his government has balanced the budget by holding back allocated spending from departments and agencies.

He points to increased revenues as the driving force behind the run of annual deficits turning, finally, to surplus.

However, he doesn't deny lapsed funding occurs.

"The lapses are normal," he told reporters on Monday. "We make certain they [the departments and agencies] have enough money, but we don't expect them to spend every single dime."

Lots of numbers, lots of interpretations

Conservative campaign workers were quick to reach out to reporters covering Trudeau's response to the surplus Monday, helpfully pointing to figures indicating that transfers to people, items such as Old Age Security and the increased universal child-care benefit payments, are up.

Transfer payments to provinces and territories are also up from last year. And allocations to many departments are up year-over-year, according to some of the accompanying charts.

All of these points are as true as they are irrelevant when talking about lapsed program spending.

If you are over 65 and meet the requirements — you get paid OAS.

If you have children under the age of 17, you get child-care benefit payments.

Transfers to provinces are equally non-discretionary — factors such as population and fiscal situation get entered into a formula and a cheque comes out the other end.

So let's focus on what Finance Canada calls direct program spending.

In April, the federal government acknowledged that "year-to-date spending results for 2014-15 are at the lowest level in a decade."

It assumed $7.2 billion of the money allotted for direct program spending would never get out the door — so it took it out of the equation.

On Monday, the annual fiscal report acknowledged a further $1.8 billion was left unspent at the end of the fiscal year and was added to the government's bottom line.

That's a total of $9 billion that Parliament approved to be spent — but never was.

The rinse

There is no doubt the government didn't spend all its money — it very rarely ever does.

Harper admits as much, while Treasury Board President Tony Clement calls it a sign of "good financial management." 

So, Trudeau is right to say Conservatives have announced spending that never saw the light of day. But so did past Liberal governments, just not to the same degree.

In 2010-11, with the rush to announce stimulus spending in the midst of the global financial meltdown, about $11 billion was promised but not spent.

That number has been gradually shrinking since then.

The April budget document said the lapse of budgeted money is expected to be about five per cent of allocated funds by 2018-19, "which is close to post-2000 historical lows."

That, it said, will "introduce an element of prudence into the fiscal projections."

Before drawing any conclusions as to who is right and who is wrong (if anyone), some perspective may be useful.

The deficit was projected to be $2 billion for 2014-15; instead it was a surplus of $1.9 billion

The difference between the two, as a percentage of the government's overall spending and revenues, works out to 0.6 per cent.

As a percentage of Canada's economy, it's 0.2 per cent.

This is why you will hear economists say that these kinds of numbers don't matter all that much.

So while there can be little doubt the unspent $8.7 billion contributed to that surplus — it's also fair to say the $6 billion in unforeseen revenues did its part as well.