Budget Watchdog Offers Mixed Review of Ottawa’s New Budgetary Framework

The parliamentary budget watchdog is welcoming the Liberal government’s decision to shift the release of its budgets to the fall from now on, but says its new definition of capital spending is “overly expansive.”

Interim Parliamentary Budget Officer (PBO) Jason Jacques summarized his “initial observations” on Ottawa’s new budgetary framework in an Oct. 7 report. The PBO welcomes moving the federal budget release date to the fall, ahead of the new fiscal year, the report says.

“This will allow for better alignment between the budget and the Main Estimates and ensure that parliamentarians have a more comprehensive federal spending plan before they are asked to approve money for the new fiscal year,” the PBO wrote.

Finance Minister François-Philippe Champagne announced on Oct. 6 that the federal government will introduce its budgets in the fall from now on. He said this would facilitate better financial planning for federal departments, businesses, and investors, and “more closely align” with the construction season.

Champagne also said the government’s fiscal update, which is usually introduced in the fall to update Canadians on the government’s financial situation, will now be introduced in the spring. He told the House finance committee on Oct. 6 that introducing the budget before the main estimates will make the process more transparent.

The government also intends to separate day-to-day operational spending from capital investment in all federal budgets moving forward, Champagne said. The change intends to guide decisions and prioritize investments like major projects, housing, clean energy, and infrastructure, and will provide a “clearer picture” of Canada’s investments, he said.

He also said the government will maintain, not replace, its existing financial reporting. The PBO is “pleased” Ottawa will maintain its existing reporting and remains committed to complying with the Public Sector Accounting Standards, the report says.

Capital Investment Definition

However, the PBO says the government’s new definition of capital investment is “overly expansive and exceeds international practice such as that adopted by the United Kingdom.”

The Liberal government’s new Capital Budgeting Framework defines capital investment broadly as “any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community or another level of government.”

The document says the new definition intends to focus on capital investments where the funding recipient is required to invest in capital formation to receive the benefit, and where the spending encourages or enables capital investment in identifiable sectors or projects.

This would include spending such as corporate income tax expenditures, operation subsidies, and measures to grow the housing stock, which the PBO says will “likely overstate the actual contribution of federal government spending to non-residential capital formation in the economy.”

Spending that doesn’t fall under capital investment would be considered day-to-day operating spending, such as major government expenditures like transfers to persons, health and social transfers, as well as the costs of running government operations and services.

Conservative MP and finance critic Jasraj Singh Hallan said the change is meant to “bury the deficit in new columns to trick Canadians.”

When asked by reporters on Oct. 8 to comment on the PBO report, Champagne noted the positive part of the report is about the new budget cycle. In terms of the splitting of the budget, he said “what is important is that there’s transparency.”

Public Accounts

The PBO views the government’s new budgetary framework as an improvement in transparency and accountability, the report says, but notes there is still a gap in the timely publication of the public accounts. The PBO said the public accounts have yet to be tabled for the 2024–25 fiscal year, which ended on March 31.

The PBO has previously recommended the federal government move the required release date of the public accounts from Dec. 31 to Sept. 30 to better “align with parliamentary recommendations, OECD practices, and IMF guidelines for advanced practice in financial reporting,” the report says.

Making this change would also provide parliamentarians with “timely and clear information” about government finances, the PBO wrote.

The report says the PBO looks forward to the release of the Liberal government’s budget on Nov. 4 and will provide a more “in-depth” assessment on the government’s new budgetary framework when additional details are released.

Matthew Horwood contributed to this report.