Federal budget surplus should be used towards the national prosperity agenda

Federal budget surplus should be used towards the national prosperity agenda

The federal government is well on its way to restoring a balanced budget by 2014-15, ending seven years of deficits in time for the federal election in 2015. This is welcome news for the Institute and reflects Canada’s progress in recovering from the most recent recession.

By 2015-16, the government is projecting a $6.6 billion surplus, significantly larger than earlier estimates. The surplus is largely due to the sale of various government assets, along with a two-year freeze on departmental spending beginning in March 2014. The figure includes a $3 billion risk buffer, which means the actual surplus could be even larger by 2015.

Federal Finance Minister Jim Flaherty has indicated his preference to use the surplus to pay down the public debt, which currently stands at an estimated $617.9 billion, or 33.1 percent of GDP. While the Institute agrees that the federal surplus should be used in part towards paying down the public debt, Canada is in a relatively stable fiscal position. Its total government net debt-to-GDP ratio (comprising federal, provincial/territorial/state, and local government debt) is by far the lowest in the G7: 36.5 percent in 2013 versus 56.3 percent for Germany (the second lowest) and 87.4 percent for the United States. Moreover, the government is on track to reducing the federal debt-to-GDP ratio to 25 percent by 2021 and even further thereafter.

In past research, the Institute has voiced several recommendations for new program spending by the federal government to enhance Canada’s prosperity and competitiveness. The Institute believes the federal government is in a prime fiscal position to take on some of these initiatives. In turn, the Institute recommends the federal surplus be used toward the following:

1. Create a national transit strategy. Across the country, but especially in Ontario, Canada’s urban regions are in need of substantial improvements to their transportation networks. The capital cost for planned improvements to public transit in the Toronto region alone will amount to $2 billion annually over the next two decades. The federal government must contribute more towards these projects. The permanent Gas Tax Fund and Building Canada Fund (which will expire in 2014) form a foundation for funding transit, yet this guaranteed, transparent funding allocation should be increased. The Gas Tax Fund guarantees only $2 billion per year spread over all Canadian municipalities for all infrastructure spending. The Institute recommends this be increased using public monies to expand capital funding for transportation projects.

2. Explore a national pharma procurement strategy. Outpatient pharma care in Canada is currently not covered by provincial health insurance plans and thus drug procurement falls under the domain of both provincial health care departments and private insurance providers. This has resulted in much higher drug costs as individual providers are unable to reap the benefits of economies of scale from buying in larger quantities. In 2010, Canada had the second highest total expenditure per capita on pharmaceuticals out of 25 OECD countries ($903.02 versus $780.26 for Germany, $773.46 for France, and $586.63 for Sweden). Creating a national pharma procurement strategy would significantly lower total drug costs and ensure all Canadians have equitable access to medication.

3. Restore funding to Statistics Canada. With the severe budget cuts to Statistics Canada (federal funding was reduced by roughly 37 percent between 2012 and 2013), it is becoming increasingly difficult to assess economic trends across the country, which prohibits analysts and researchers from determining what is needed to become more productive and competitive. Many surveys and data sets have been terminated in recent years and publicly available data is becoming highly restrictive. The Institute urges the federal government to expand Statistics Canada’s capacity to ensure Canadians will have access to reliable data for the future. In 2013, Statistics Canada’s total expenditure was estimated at less than $668 million. A small fraction of the forecasted surplus would amount to a significant budget increase for StatsCan. This is an essential service and one that should be restored.

These initiatives will generate many long-term benefits for Ontario’s economy and Canada’s prosperity. The Institute commends the federal government on its fiscal prudence and sees the resulting savings as an opportunity for the government to articulate a national vision to further enhance Canada’s economic progress.

Photo Credit: TarikVision, Getty Images

Category: Economic Progress, Taxation