COMMENTARY

THE NUMBERS GAME

WILSON’S TRICKS WOULD GET ANY SELF-RESPECTING MAGICIAN HISSED OFF STAGE

Peter C. Newman March 5 1990
COMMENTARY

THE NUMBERS GAME

WILSON’S TRICKS WOULD GET ANY SELF-RESPECTING MAGICIAN HISSED OFF STAGE

Peter C. Newman March 5 1990

THE NUMBERS GAME

COMMENTARY

PETER C. NEWMAN

WILSON’S TRICKS WOULD GET ANY SELF-RESPECTING MAGICIAN HISSED OFF STAGE

Where was Doug Small when Michael Wilson really needed him? Last year’s dramatic budget leak by the Global television reporter, less than 24 hours before Wilson was due to present his 1989-1990 tax and spending plans, stirred up such a diversion that few analysts took the trouble to examine the dubious details of the finance minister’s document. But last week, Wilson had no such luck. And a closer look at his new budget reveals mathematical sleights of hand that would get any self-respecting magician hissed off stage.

The budget’s triumphantly proclaimed bottom line—a deficit of $28.5 billion projected for fiscal 1990-1991 on spending of $147.8 billion—is trumpeted as being $2 billion less than the negative balance on the current year’s total spending. That’s significantly lower than the $38.3-billion overrun the Tories inherited from the Liberals.

Dismal: But expansion of our national debt—the figure that really counts—continues unabated, to $352 billion in 1989-1990, up $151 billion, since Brian Mulroney took power. What is most frightening about this dismal reckoning is that our indebtedness ballooned during a time of relative national prosperity, when general revenues climbed by $170 billion from what Ottawa received during the last halfdecade of the Liberal years.

Now, we seem to be in a recession, and Ottawa’s tax revenues are bound to drop. At the same time, Bank of Canada governor John Crow is maintaining interest rates at such artificially high levels that the traditional twoper-cent spread between Canadian and U.S. rates has increased to a ridiculous five or six per cent, dooming this country to prolonged bad times. Crow seems determined to outdo the remarkable social insensitivity of his predecessor, Gerald Bouey, who kept trying to lick inflation by raising his own salary. The current governor’s obsession with wrestling the inflation rate to zero by driving the country into a full-blown recession is as unrealistic as it will be damaging. Parliamentary Liberal industry critic Jim Peterson is dead right when he warns that “what’s killing Canada’s economy is not the disease called inflation, but the medicine called recession.”

In his last budget, Wilson was applauded for saving $8 billion by refusing to build a nuclearpowered submarine fleet. What hardly anyone noticed was that this huge sum was merely a hypothetical expense projected over the next 27 years so that, except for the $4 million already budgeted for preparing blueprints, lit-

tle real money was saved from actual government spending. Similarly, this year, the finance minister completely abandoned Canada’s hopes of enforcing its sovereignty over the Northwest Passage by killing construction of the Polar 8 icebreaker. The move was heralded as a saving of $689 million. But that, too, was the final cost of a long-term project, on which only $15 million has been spent so far on design and administration and only $84 million previously budgeted for the next fiscal year.

The ship, due to be built in British Columbia

yards, would have , given Canada its first yearround ability to patrol the disputed Northwest Passage; now all we can do is send out a Mountie on a snowmobile to give intruders parking tickets. External Affairs Minister Joe Clark said it all when Ottawa first commissioned construction of what was to have been the world’s most powerful icebreaker: “Sovereignty claims you can’t defend gradually disappear.”

Tinkering: Similarly, the Wilson budget boasts that federal withdrawal from Alberta’s $4.1-billion Other Six Leases Operation (OSLO) oil-sand project will save $650 million. That was the eventual subsidy Ottawa had promised to pay out during the operation’s 35-year lifespan; up to now, only $40 million has actually been spent on OSLO engineering studies and no money had been budgeted for 1990.

Some of the other so-called savings amount to little more than rearranged deadlines. An estimated $400 million will be “saved” by having the Bank of Canada remit earnings on its investments to the federal treasury on a monthly instead of an irregular basis. Another $250 million will be gained by stripping Crown corporations of their cash reserves and tightening up their dividend flow requirements. All

these funds would eventually have been transferred to general revenues in any case. That’s tinkering, not creative budget-making.

Wilson is only semantically correct in his grand proclamation that he isn’t imposing any new taxes this year. He isn’t. But his 1989 budget introduced strict measures that will raise this year’s taxes by $7 billion—not to mention the big nibble about to be taken out of our incomes by the proposed seven-per-cent Goods and Services Tax, due on the first day of 1991.

But the worst aspect of the Wilson budget is its underlying assumptions that the Canadian dollar has stabilized against other currencies and that interest rates will miraculously drop. There is little if any evidence in that direction, unless loonies unexpectedly gain heavenly exemption from current monetary trends. Nearly every private-sector expert is pointing his predictions the other way. (It was Wilson’s seriously flawed forecast that this year’s shortterm interest rates would average 10.1 per cent—in fact, they have averaged 12.2 per cent—that resulted in the government paying $6-bilhon more in debt charges than it had forecast and forced the current spending reductions in order to maintain Wilson’s deficit target.) While Wilson’s current projections for 1991 are tied to 9.5-per-cent short-term interest rates, private economists expect levels of at least 10.8 per cent. That difference would add at least $2 billion to Wilson’s deficit prediction.

Tricks: Michael Wilson is an intelligent man who understands economics, and it is sad that the exigencies of politics have driven him to attempt the cheap fiscal tricks that characterize this budget. Sadder still is that we are in such dire economic straits that none of these manoeuvres will mean very much. While Wilson’s own five-year projections call for a deficit reduction to $10 billion by 1994-1995, his calculations also show that net public debt will by then have increased to $452 billion. That is a $72-billion leap from the current total. According to Wilson’s figures, four years from now Canadians will be paying $41 billion in annual interest on the national debt—precisely what it will cost us this year. This is providing, of course, that the finance minister’s calculations prove to be correct, a highly questionable assumption.

That is why, instead of being convicted of any misdemeanor, Doug Small should be placed on a government retainer. The only condition would be that, on prebudget night, he go on television and wave a piece of paper that steals public attention from the budget itself.