Not the most alluring of tasks: reforming Canada’s fiscal practices, lessons from the Open Budget Survey (OBS) 2019

Helaina Gaspard

In its introduction, the Open Budget Survey (OBS), highlighted global challenges.  With demonstrations, as noted in the introduction of the OBS results, in countries as diverse as Brazil to Lebanon, discontent is often connected to matters of the raising and spending of public money.

Since that introduction was drafted, the COVID-19 pandemic has sent economies into recession and has forced a series of tough conversation and decisions on resource-allocation.  As countries shift from emergency response to recovery, higher deficits and debt will be front and centre for years to come.  Politicians will be faced with an opportunity in this crisis. 

From climate change, to infrastructure, to institutional trust, its crucial to recall that public money will be a tool not only to ease immediate pain, but to reorient and readjust various industries and policy matters.  Budgeting is about more than dollars, but about trade-offs.  How money is allocated, the value citizens get for the spending, and the long-term sustainability of public finances are crucial considerations.  There will be a fiscal reckoning as debt, and inequality rise in uncertain economic contexts.   

The principal overseer of government decision-making is the legislature.  Legislatures exist within a fiscal ecosystem that includes the executive branch, non-partisan public administration and other key actors, such as civil society, media and the private sector. The ecosystem is composed of an intertwined set of political incentives, public and private information and a web of rules and processes based on constitution, legislation, convention and political expediency.

The International Budget Partnership (IBP) runs the OBS at two-year intervals.  Now in its seventh edition, this global survey assesses the systems and practices of over 100 countries.  Working with research institutes, civil society organizations and government reviewers, the OBS seeks to better understand the state of public budgeting around the world through the lenses of transparency, public participation and oversight.  This initiative is an important one. 

The raising and spending of public money lies at the heart of democratic legislatures and reflects a state’s priorities and goals. 

It’s no small undertaking to marshal resources and attempt to aggregate findings of countries with substantive operational and institutional differences.  While the OBS is a helpful arbiter of overall budgetary transparency, the methodology fails to capture the very challenges of Canada’s budgetary system. 

Canada has participated in the 2017 and 2019 OBS and has scored a 71/100 in both exercises.  In the most recent OBS, various countries outperformed Canada: Brazil (81/100), Georgia (81/100), Mexico (82/100), South Africa (87/100), and Sweden (86/100), among others.  The Philippines and Peru scored marginally better than Canada overall, both at 76/100.

In 2019, Canada was 15th out of 117 participating countries, with its overall transparency score of 71/100. Canada’s legislative oversight scored poorly (44/100, which is considered low), relative to its audit oversight (89/100, which is considered adequate).  In both instances, OBS methodology could not capture the challenges with Canada’s system nor its particularities as a weak-form Westminster legislature. 

Canada’s system separates the budget (increment) and appropriations (complete expenditures), which is uncommon, as they are considered one and the same in the majority of countries.  The OBS methodology has no means of capturing this particularity.  Anecdotally, during a research session in Washington, DC with researchers from various countries, colleagues thought the Canadian did not understand their own country’s budgeting system because the assembled researchers could not grasp how a country like Canada separates their budget and appropriations bills.

In fact, in Canada, the budget and appropriations bills are not only separated, but also written in entirely different financial accounting language: while the budget is presented on an accrual basis, the estimates used for year-end financial statements and summaries are written with cash-based budgeting information.

Accrual financial information produces a better picture of the government’s finances, such as its resources, obligations, financing, costs, and the impacts of its activities). This more complete picture helps legislators hold the government more accountable for safeguarding its assets, appreciate the full costs of its programs, and assess its ability to meet its short- and long-term financial obligations.

The different accounting practices and lack of alignment of the appropriations and budget make it nearly impossible to clearly track how public money moves from the budget document (a high-level fiscal plan), to the estimates (departmental spending), to the public accounts (how money was spent). There are disconnects of timing, accounting and information.

And being a weak-form Westminster legislature that can approve or reject legislation (and sometimes, play a more influencing role in minority parliament situations), is not an excuse.  New Zealand is a top scorer in the OBS (89/100) and leads the pack on transparency and oversight in public budgeting practices.  From accessible explanatory notes to online results tracking, New Zealand demonstrates that transparency can be useful, meaningful and support better politics.

A solution to Canada’s budgetary practices must come from Parliament itself to strengthen financial control responsibilities and fix these systemic problems. There are three areas on which parliamentarians may wish to focus.  First, Parliament should see the fiscal plan, departmental plans, and requested authorities (voted and statutory) before the beginning of the fiscal year in the financial cycle (April 1).  Second, the annual budget (plans) and estimates (requested authorities) documents must be written in a consistent accounting framework.  Third, and relatedly, the parliamentary vote structure should be based on program activities, rather than on operations and capital. These changes would ensure a more robust link between expenditure, activities, and results between the executive, legislature, public service, and Canadians themselves.  The need for these reforms has been acknowledged and well-established by Canadian parliamentarians, and is consistent with the recommendations from the Standing Committee on Government Operations and Estimates, Strengthening Parliamentary Scrutiny of Estimates and Supply, in 2012. 

Perhaps one of the simplest proposals of all is to render Canada’s budget process one that can be followed by parliamentarians and citizens.  Opening up the process for citizen engagement, participation and oversight would not only improve transparency but potentially, improve decision-making.

The current crisis should serve as an opportunity for action in Canada.  Sure, we are nowhere near the bottom of the global pack with scores in single digits, but we shouldn’t be comparing ourselves to the lowest common denominator.  Whenever work takes us abroad, we’re struck at how countries as different as Myanmar to Jamaica want more Canada.  We govern ourselves well.  Our fiscal practices should better reflect that.  There no need to wait around for a crisis to adjust a system in need of improvement. It might not be the most alluring of tasks, but then again, fiscal plumbers are never celebrated until the pipes burst.