IFSD Platform Assessment Framework: Fiscal Credibility of 2019 Federal Party Election Platforms

by Kevin Page, Mostafa Askari, and Emily Woolner

In October 2019, Canadians will go the polls to elect a new federal parliament. Political parties are busy preparing campaign strategies and plans, including policy platforms. Policy platforms have been an important staple of federal elections campaigns in Canada over the past three decades. For the 2019 federal election campaign, IFSD plans to assess the fiscal credibility of the election platforms of the major political parties. The purpose of this note is to outline, in advance, the principles and criteria that will be used to assess and score the platforms. As with government agendas after an election, there should be no surprises.

There are three reasons why platforms matter:

  1. Platforms signal what matters for political parties and with whom the party is engaging;
  2. Platforms predict government behavior; and
  3. Platforms are an important tool for citizens and parliamentarians to hold a new government to account.

According to a 2017 international comparison study in the American Journal of Political Science that examined the platforms of 12 countries (including Canada), parties that form governments generally fulfill high percentages of their election pledges.[1] It is safe to say that, overall, parties are likely to govern, or at least try to govern, according to the pledges set out in their platforms. They are a roadmap of what a party wants to implement and achieve in the future. 

Platforms are also an important communicative tool to voters. They are a statement by which parties assert their strengths and demonstrate their principles to their base supporters as well as to other voters.  Voters tune in to platform statements as a way to infer the policy positions of candidates and parties.

Despite the relevance of political platforms, there are few international or recognized standards that exist for their formulation and content.  While content on campaign organization and strategy abounds, less consideration is given to these guiding documents. Given this remarkable gap, it can be difficult to assess if a platform has been well-drafted, and whether its commitments are feasible from an accountability perspective. 

Citizens should encourage political parties to use the electoral campaign process to articulate, debate and seek policy mandates on a broad range of challenges facing the country. For the party that forms government, a clear and complete platform simplifies the development of a governing mandate. With clarity around policy mandates secured through a complete platform, the oversight of the legislature is focused on the efficiency and effectiveness of proposed legislation and financial authorities.

Voters will want to assess the vision, values, priorities and full range of policy positions on the major issues that are articulated in a party platform.

IFSD plans to assess and score the fiscal credibility of all major party platforms.[2] It is a narrower focus.

While fiscal management is just one dimension of a party platform, it is an important one. We have learned from recent history that the ability of parties to implement their platform can depend critically on the economic and fiscal outlook and a government’s capacity for fiscal management. The path forward can start with the party platform. In the 1990s, Prime Minister Chretien successfully took on the fiscal challenge of high debt. The government benefitted by an environment of continuous growth. Setting deficit reduction targets was a key element of the Liberal platform (Red Book) in 1993. In 2008, Prime Minister Harper was forced to refocus his government’s agenda when the world financial crisis hit. The Conservative Platform in 2008 (True North Strong and Free) made little to no mention of the dark economic clouds that were on the horizon.

In this regard, IFSD will examine platforms according to three principles:

  1. Realistic and credible economic and fiscal projections
  2. Responsible fiscal management
  3. Transparency

The IFSD acknowledges that scoring the platforms based on these principles involves a degree of judgement. To highlight the judgement, for each principle we have outlined 3 evaluation criteria.

For each criterion, a political party could achieve a score of 0, 1, or 2 depending on the degree the platform responds or aligns to the principle.

A platform is eligible for a total score of 18 based on this fiscal credibility assessment. First class standing would require a score of 14 (out of 18) or 78 per cent. This would be a good score and would suggest that the platform performs well from a fiscal credibility perspective and should provide some confidence to voters.

We think the major political parties are well positioned to have strong political platforms for the 2019 federal election from a fiscal credibility perspective (i.e. first class standing). The Liberal government’s change to the legislation underpinning the PBO is a major factor. PBO has been given the mandate and resources to help political parties cost individual proposals. While the use of PBO resources is not mandatory, indications from the media suggest that all political parties are making use of this important resource.

The fiscal credibility assessment of party platforms includes the examination of the (non-mandatory) use of PBO economic and fiscal outlook baselines and the related transparency of information that PBO would generate for political parties to provide costing of new measures. By looking at the broader issues related to fiscal responsibility, transparency and the economic and fiscal outlook, we feel the credibility assessment is an important additive to the work of PBO.

The rest of this note provides brief descriptions of each principle and the criteria that would be used to score it.

Principle 1: Realistic and credible economic and fiscal assumptions

Context

Realistic assumptions are a critical component of planning. Political platforms that are based on a realistic view of the planning environment are more likely to generate confidence and trust and better able to support successful implementation of new policies and programs in a timely manner.  At the same time, it must be recognized, as the late Maynard Keynes said “the future is not uncertain, it is unknowable”. Realistic plans must be made with a reasonable and balanced view of risks. Political platforms should be designed in a way that sheds light on the need and nature of adjustments to priorities and policies as unanticipated developments or risks materialize.

In 2008, political platforms in the fall federal election in Canada did not acknowledge the prospects for a global financial crisis and a recession. The crisis created significant hardship for Canadians and required the government and Parliament to undertake extraordinary measures within months of an election. A number of analysts have suggested that the failure of leaders across the globe to see and address risks building in the lead up to the financial crisis fundamentally damaged trust in democratic institutions.

Principle

Election platforms are deemed to be based on a realistic view of the future if efforts are made to use assumptions and baseline (status quo) economic and fiscal projections that our commonly perceived to be reasonable and trustworthy because they reflect a balance of risks (upside and downside) and are generated by trustworthy and independent sources.

Criteria:

1.1 Platform uses the latest PBO baseline economic and fiscal forecasts

Section 79.21 of the Parliament of Canada Act conferred a new mandate on the PBO to estimate the financial cost of election campaign costs. To support this exercise, on June 20, 2019 released its pre-election proposal cost baseline. This baseline includes a 10 year economic and fiscal baseline that will be used to support costing of potential measures in party platforms. This baseline is considered realistic and from an independent and authoritative source.

Although other organizations are also capable of providing independent and credible economic and fiscal projections, it is important that all parties use PBO’s baseline forecasts.  This would facilitate comparing the economic and fiscal implications of different platforms.

1.2 Platform articulates economic challenges

Canada faces several economic challenges.  Issues such as ageing demographics, weak productivity growth and declining role of the manufacturing sector are a few examples of the issues that voters expect the government to address.  A credible platform articulates the challenges that the party believes are important and its plans for addressing them.  There are also economic uncertainties and risks that could significantly affect a party’s economic plan.  Those must also be identified and addressed in a credible platform.

1.3 Platform articulates fiscal challenges

Although federal finances are estimated to be sustainable in the long-run, Canada is not immune to economic and financial shocks, which could significantly worsen the fiscal health of the federal government.A credible platform must identify fiscal challenges and risks and articulate a clear plan to address them.

Principle 2: Responsible Fiscal Management

Context

Responsible government is, by definition, a system of government that includes the principle of parliamentary accountability which is the foundation of our Westminster system of parliamentary democracy. Given the broad spending and taxing powers afforded to the federal government in our Constitution and the borrowing authorities afforded to the Minister of Finance, it is important that political platforms take seriously the need for responsible fiscal management for current and future tax payers. Responsibility in fiscal management means managing the full range of policy challenges with tax payer dollars in a fiscal sustainable manner. Budgetary constraints are required to ensure fiscal policy supports economic growth and stabilization (i.e. budgetary deficits when the economy is weak and surpluses when the economy is strong) and that public debt does not grow out of balance with GDP which would impair future economic outcomes for citizens and the policy choices of future governments. Given uncertainty associated with planning environments, responsible fiscal management also implies embedding in fiscal planning framework a level of prudence to address risks.

In 2019, Canada’s federal government is considered to be in a relatively good fiscal position as illustrated by a relatively modest budgetary deficit and public debt. The budgetary deficit is structural in nature – meaning it is a deficit while the economy is believed to be operating near its trend level. In this context, the fiscal policy stance is modestly accommodative with respect to growth. Reflecting low interest rates, the carrying cost of debt (public debt interest relative to budgetary revenues) is at historic low levels. According to the PBO pre-election economic and fiscal baseline projections, budgetary deficits and debt relative to GDP are expected to decline over the medium-term. PBO estimates that the federal fiscal structure is currently sustainable in the face of aging demographics.

Principle

Election platforms are deemed to be responsible in fiscal management if the combined impact of costing of policy proposals are managed within clear and accountable budgetary constraints that promote economic growth and stabilization over the business cycle and longer term sustainability of public finances in the face of aging demographics.

Criteria:

2.1 Platform commitments are consistent with a defendable medium term fiscal strategy and framework.

Party platforms should include a description of fiscal policy objectives over the short and medium term. The objectives will be informed by a planned and/or targeted trajectory for the budgetary balance and debt over the next four years expressed in nominal terms or as a percent of GDP. The planned and/or targeted path for the budgetary balance could be expressed in cyclically adjusted terms to better illustrate the relationship of the fiscal policy stance on the economy as performance differs from projections. Planned and/or targeted rates of growth for components of program spending could be used to support fiscal policy objectives over the short and medium term.  

2.2 The platform’s commitments maintain long-term fiscal sustainability.

Canada is experiencing significant demographic change over the next 25 years. The senior dependency ratio, the ratio of individuals 65 years and older to the population between 15 and 64 years – is projected to increase from 25% to 40% from 2017 to 2042. As a greater proportion of the population enters retirement years economic growth will slow as labour force growth slows. Slower economic growth means slower government revenue growth. More seniors will increase growth in old age security type programs and health care expenditures. Fiscal sustainability means that government debt will not grow faster than the economy.

Analysis by Finance and the PBO indicate that the federal government has a fiscal structure that is sustainable while the provinces, with the exception of Quebec, are not fiscally sustainable. It is important that party platforms that make large public policy commitments will temper the implementation to ensure long term fiscal sustainability.

2.3 The fiscal planning framework contains adequate provisions for unforeseen events and/or forecasting errors.

Responsible fiscal management is based on a planning framework that balances economic and fiscal risks and a strategy that promotes economic growth, stabilization and long term fiscal sustainability. In establishing appropriate budgetary constraints over the medium term it is deemed to be a good practice to include a level of prudence in the planning outlook to recognize both the importance of living within budgetary constraints (promotes trust) but also the risks associated with any planning outlook.

The level of prudence can be expressed in nominal terms ($ billions) and can be right sized relative to economic and fiscal considerations.  If risks are elevated (out turns on budget balance could be quite different than expectations) and the economy is operating near potential, consideration could be given to increasing the level of prudence. Vice versa, if planning risks are deemed moderate and the economy is operating below potential, consideration could be given to a smaller level of prudence. To promote policy clarity, platforms could signal how any unused fiscal prudence will be used – will it be used to reduce the debt or as a source of funds for a new policy initiative.

Principle 3: Transparency

Context

Transparency is the ‘sine qua non’ (i.e., indispensable and essential action) of political discourse, accountability and trust. Political leaders may be inclined to be vague on details (e.g., policy parameters, costs, impacts, risks) on new policy proposals for any number of reasons: they do not have them; details expose trade-offs that create winners and losers; and, there are factors beyond their control that are critical to success; amongst others. The pressure is on citizens, civil society and political opponents to push for greater transparency in political discussions and policy platforms in the lead up to an election.

Policy platforms are not budgets or legislation to be tabled in a Parliament. The level of detail required for financial due diligence in a legislative setting is much higher. Nonetheless, political parties will lay out plans in party platforms that involve tens of billions of dollars of tax payer money over the next year and should the party be successful in forming a government will likely declare that they have been given a political and policy mandate to move forward . It is important, in this regard, that policy platforms be as transparent as possible.

Policy

A transparent platform provides enough information about its policy measures to support its claims in terms of their impacts on the economy, the finances of the Government and the wellbeing of individuals and families.

Criteria

3.1 Platform provides economic and fiscal outlook for five years (2019-23) with details on key indicators, which incorporate the proposed policy measures.

A platform’s proposed policy measures will change the economic and fiscal outlook.For example, changes in the tax system would have impacts on the outlook for economic activity and government revenue and expenditure.A credible platform should provide detailed economic and fiscal forecasts that incorporate its policy proposals.

3.2 Platform provides sufficient detail on its proposed policy measures

A platform’s proposed policy measures should be explained in detail to allow voters to evaluate their efficacy. The proposals must outline desired outcome, priorities and timelines. Aspirational objectives such as “increasing productivity growth” or “reducing poverty” without identifying specific measures to achieve them would not get any credit.

It is also recognized that party platforms will make commitments to review spending (for future savings) or launch processes to consider new policy initiatives.  In this context, it is important for the party platform to provide sufficient information to allow voters an opportunity to assess the quality of the process. Planned savings for a future review should not be used as a source of funds for other initiatives.  Launching a process to examine a policy option should not be communicated as a cost-free path to a different policy outcome.

3.3 Platform provides a clear implementation plan for key policy measures

In addition to having a comprehensive plan based on realistic assumptions, election platforms must outline a detailed implementation plan with timelines and contingencies for potential obstacles to implementation. For example, if a policy measure (e.g., national pharmacare) requires agreement from other levels of government or other stakeholders, the plan must articulate how the party plans to gain their agreement if it forms government.

 

[1] Thomson, Robert; Royed, Terry; Naurin, Elin; Artés, Joaquín; Costello, Rory; Ennser-Jedenastik, Laurenz; Ferguson, Mark; Kostadinova, Petia; Moury, Catherine (2017-07-01). "The Fulfillment of Parties' Election Pledges: A Comparative Study on the Impact of Power Sharing". American Journal of Political Science61 (3): 527–542.

[2] The term fiscal credibility has been used by economists over the years. We think the clearest interpretation was provided by Scott Clark, a former federal Deputy Minister of Finance. See Clark, Scott,(2011), “What is Credible Fiscal Policy? The Canadian Experience, 1983 – 2010: The View of a Former Practitioner, New Directions for Intelligent Government in Canada, Canadian Centre for Living Standards.