The Parliamentary Budget Office (PBO) has expressed approval of the decision by the Liberal government to shift budget day from spring to fall. However, the PBO has raised concerns over Finance Canada’s broad definition of capital spending as announced recently. In an analysis released on its website, the PBO highlighted that moving the budget date to fall will provide legislators with more timely and transparent information for scrutinizing expenditures, a change long advocated by the PBO.
The move to fall budgets is expected to enhance alignment between the budget and main estimates, offering parliamentarians a more comprehensive federal spending plan before approving funds for the new fiscal year. Main estimates, typically issued in spring, outline planned spending for the upcoming fiscal year and are subject to examination and approval by Members of Parliament to authorize government spending.
Former PBO Kevin Page, writing in Policy Magazine, welcomed the transition, noting that releasing the budget well in advance of the fiscal year’s commencement will aid businesses and other governmental levels in better planning ahead.
Finance Minister François-Philippe Champagne recently announced the budget date change, revealing Prime Minister Mark Carney’s strategy to differentiate day-to-day operational spending from capital investments in all future federal budgets. While the budget will present a single deficit figure, Champagne emphasized that it will facilitate distinguishing between expenditures for government operations and those aimed at purchasing or investing in assets.
The PBO has expressed contentment with the Carney government’s commitment to adhere to public sector accounting standards. Nonetheless, the PBO has reservations regarding Finance Canada’s approach to defining capital expenses.
According to Finance Canada, capital investment encompasses any government expense or tax expenditure contributing to public or private sector capital formation, either held on the government’s balance sheet or that of another entity. The focus is on two types of capital expenditures: those necessitating investment to create infrastructure or capital assets and those enabling capital investment in specific sectors or projects. Examples include spending to increase the housing stock or incentivize companies to invest in assets, research and development, or boost productive capacity through tax incentives.
The PBO has flagged the broad scope of the defined capital expenses, suggesting that it surpasses international norms. The analysis raises concerns that the inclusion of corporate income tax expenditures, production subsidies, and measures for housing stock growth may overstate the actual impact of federal government spending on non-residential capital formation in the economy.
While Page recognizes the merits of segregating capital spending from daily expenditures for enhanced fiscal transparency, he refrained from addressing the federal government’s definition of capital expenses.