The federal government’s move to full accrual accounting in Tuesday’s budget has reduced the net public debt by almost $29 billion, but only because non-financial assets are included. Financial liabilities have increased much more than financial assets.

Accrual accounting means booking revenues and expenditures at the time they are incurred. This has been Ottawa’s practice on the expenditure side but revenues tended to be booked on an accrual basis, when they were received. Thus, under the old system, personal taxes collected in April 2002 were booked in 2002; under full accrual accounting they are assigned to 2001, the year for which they are levied.

Going forward, this will translate into a slight upward bias. That is, revenues will be slightly higher on a full accrual basis than they would have been under the old system, reflecting population growth. The only exception will be in periods of very sluggish growth or recession when the resulting negative impact on revenues will show up immediately.

Nevertheless, this is considered a much better accounting system because it presents a more up-to-date and comprehensive picture. Both the Auditor General of Canada and the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants have been strongly urging its adoption.

Accrual accounting also means including all assets and liabilities, including non-financial. Key liabilities that are now included are tax refunds payable ($30.4 billion as of Mar. 31, 2002) and non-pension employee and veterans‚ future benefits ($27.8 billion). The major financial assets now included are $44.1 billion in tax receivables.

Total financial liabilities increased $71 billion to $695.1 billion, total financial assets increased $45.9 billion to $132.1 billion and non-financial assets, included for the first time and primarily buildings, were $55.2 billion.