Source: The Canadian Press

Canadian governments overspent their budgets by a massive $65 billion over the last decade, a transgression that has come back to haunt them in this new era of high deficits, a new study shows.

The annual “Pinocchio” Index by the C.D. Howe Institute suggests governments with the most fiscal room — particularly resource-rich Alberta and Saskatchewan — have grown the longest noses over the decade.

But even the federal government, under both the current Conservatives and the predecessor Liberals, has routinely spent more than the budgets they presented and received approval for in Parliament.

Over the 10 years ending in 2009, Ottawa has overspent its budgets by $21.7 billion cumulatively.

“It is a lot of money,” said C.D. Howe chief executive William Robson.

“If Ottawa and the provinces together had actually succeeded in sticking to their budget targets, then when we got hit by this downturn (they) would have been able to go into modest deficits without any fears along the lines of what we’re seeing in Europe and the United States.”

In March, the Harper government said it would post a $53.8 billion deficit in the just completed fiscal year, and would fall another $49.2 billion into the hole during the current year that ends next March 31.

Economists, however, say many provinces face an even bigger fiscal squeeze in the future, particularly as they have fewer revenue sources and will be most impacted by skyrocketing health care bills to care for aging baby boomers.

Ontario, relative to its population, faces the biggest obstacle with deficits of $21.3 billion and $19.7 billion in the past and current fiscal years. The provincial government has estimated it will take eight years to return to a balanced fiscal position, assuming the economy goes as expected.

The economic think-tank notes that the $65 billion represents what governments spent beyond what they said they would in their budgets, and is not a judgment on whether the budgets themselves were prudent.

And that’s the problem, says Kevin Gaudet, the national director for the Canadian Taxpayers Federation.

Governments in general have been “profligate” in their budget targets, so there should have been little excuse for exceeding them.

“I’ve been following this issue for years and we think there should be a law that precludes them from overspending their budget … except for a national disaster or war,” he said.

According to the study, Alberta and Saskatchewan place last among provinces for overspending their budget commitments with overruns of $11.4 billion and $3.4 billion respectively.

Ontario, Canada’s most populous province, overspent its budget by $14.5 billion, but in percentage terms placed fourth overall in terms of accuracy.

Perhaps surprisingly, given its reputation as a high-spending jurisdiction, Quebec placed first in terms of accuracy — how closely spending matched the budget — followed by New Brunswick.

However, all those provinces and their finances were hit hard by the unexpected impact of the 2008-2009 recession, which squeezed their revenues and led to higher spending pressures long after budgets had been set months earlier during better times.

In the case of Alberta and Saskatchewan, a sharp drop in oil and natural gas prices during the recession squeezed royalty revenues and slowed down the western provincial economies.

In Ontario, the near collapse of the auto sector led to thousands of job cuts and the need to spend billions of dollars in government bailouts by the federal and Ontario governments.

As far as controlling spending, the C.D. Howe report says Newfoundland topped the list by spending $200 million less over the past decade than they had budgeted. But because the province often missed its targets both up and down, it’s accuracy rating fell to number five among the 14 governments. The territorial governments generally were well down the list for accuracy.

Ottawa’s record looks far better if the goalpost is moved from annual accuracy to how much it exceeded projections on average over the 10 years — from eighth among the 14 governments to second, thanks to the 2005-06 fiscal year when spending was less than budgeted.

As well, the low federal ranking is skewed by one particularly egregious overshoot during the last year of the Paul Martin minority government, when spending exceeded projections by $11.5 billion.

Overall, Robson said Canadian governments do well when stacked up against European nations or the United States, and Ottawa’s far better than its record would have looked in the 1970s, 1980s and early ‘90s when it was racking up massive annual deficits.