Budget 2006
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Archived - Chapter 2:
Concerns Over Transparency in Federal Fiscal Planning

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Prior to the late 1990s, both orders of government went through a sustained period of running fiscal deficits, resulting in rising debt-to-GDP ratios. The deficits were clearly unsustainable, and both orders of government significantly reduced program spending in order to bring their respective finances under control. (Annex 2 describes in greater detail the evolution of the federal and provincial-territorial fiscal situation in recent decades.)

Several provinces led the way to a return to sound public finances. The federal government was able to record its first surplus in 1997–98 and has since had eight consecutive years of surplus. Progress toward balanced budgets proceeded at a different pace in different provinces and territories: they achieved a combined positive budgetary balance in 1999–2000 and posted combined positive budgetary balances in five of the past seven years.

Chart 2.1 - Federal and Provincial-Territorial Fiscal Situations Have Improved Significantly Since the Mid-1990s

Benefits From Sound Finances

There is strong agreement that this return to sound finances has generated many benefits for Canada and Canadians:

While the restoration of Canada’s fiscal health has been a positive development, federal surpluses over the last eight years have generally been larger than anticipated, generating considerable controversy. On average, the federal budgetary balance has been $5.6 billion better than forecast in the budget each year since 1997–98. Over the same period, aggregate provincial budgetary balances also exceeded their forecast by $4.7 billion a year on average.

Chart 2.2 - Both Federal and Provincial Governments Have Registered Larger Than Expected Budgerary Balances in Recent Years

Reasons for Larger Than Anticipated Surpluses

An independent review of the federal government’s fiscal forecasting process in 2005 by the International Monetary Fund (IMF) found that Canadian federal budget projections of macroeconomic and fiscal aggregates have been more cautious than those in other countries since the mid-1990s, resulting in a consistent underestimating of budget balances and the largest average forecast errors among the countries examined.

There are two reasons why these better than expected results have occurred:

Concerns Over Larger Than Projected Surpluses

The repetition of much larger than projected surpluses has led to three recurring criticisms of federal budgeting from participants in the current debate over fiscal relations:

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