Macroeconomics

4.0 Public Policy

4.1 Fiscal Policy

(b) Terminology                                     

Fiscal policy or ‘public finance’ involves primary political choices, each with its associated opportunity costs.  Fiscal policy involves answering hard questions about what pleasures to publicly provide, to whom, how much, and, how to inflict the pain necessary to raise the required public funds.   Attaining macroeconomic objectives like fostering economic growth and maintaining price stability provide only a ‘glass ceiling’ above the heated political debate of making the ‘tax and spend’ choices of each and every Government.  The ceiling, however, has a great deal of flexibility.  The Keynesian Revolution called for spending in bad times and saving in good times.  This is not what Government did.

From the 1960s to the mid-1990’s Government around the developed world spent in good and bad times.  In fact, they spent more than they willing to pay in additional pain to the taxpaying public.  So they ‘borrowed’.  Politics thereby raised the ceiling.  The ceiling only began to come down when ‘deficit and debt’ became the political mantra of the industrial world and interest payments on the national debt the largest single and least satisfying pleasure paid for out of the public purse.  

By the late 1990s, deficits were slashed; debt began to shrink; and, social infrastructure built up over two generations crumbled but fortunately did not collapse.  As the 21^st century begins, the word ‘surplus’ has even re-entered the political vocabulary.   Inevitably, perhaps, the heat generated by all the public policy spheres rubbing up against each other is threatening to raise the ceiling once again.  Jockeying to be first to fill its specific ‘deficit’ incurred during the ‘slash and cut’ of public debt and deficit reduction, each public policy sphere is raising its profile before the political public.  Collectively, their wants, needs and desires threaten macroeconomic goals such as economic growth (increasing potential real GDP) and price stability (low inflation).  If the GDP pie grows and the cost of its slices does not increase then more public pleasure may be had with no increase in public pain in the form of taxes or interest payments on the national debt.  If not, some will win and some will lose.  It is to the naming of these various Canadian spheres of political influence that now I turn. 

As a federation, Canada has had amply time to sort out the naming of these spheres of public policy.  Since at least 1918 with the founding of the Dominion Bureau of Statistics (now Statistics Canada), the federal and provincial governments have come to agreement on certain terms.  These became embodied in The Canadian System of Government Financial Management Statistics (CSGFMS).  In 2001 the system arguably became a victim of globalization and a general decline in the quality of the publicly generated statistical evidence.  One thing is certain, it will take decades to develop actionable time series.

The FMS was founded on a modified-cash based system of accounting. Recently, Canadian governments have decided to move from that modified-cash based accounting system to an accrual based accounting system. In addition, an internationally accepted Government Finance Statistics (GFS) manual has been developed. The GFS 2001 is an internationally accepted accrual accounting framework for government finance statistics. The GFS 2001 is also fully integrated with the United Nations (UN) System of National Accounts (SNA) framework. Given these changes, the Canadian statistical system underlying government finance statistics must also change. Statistics Canada has decided to move towards reporting government finance statistics on a Government Finance Statistics 2001 (GFS 2001) basis.

In the following I will deal with the original 'made-in-Canada' system.  The CSGFMS was used for purposes of the Fiscal Arrangement Act between the federal and provincial governments.  The CSGFMS was used to calculate, among other things, equalization payments by the federal government to the ‘have-not’ provinces of the country.  Next to the System of National Accounts (to which it is fully compatible), the CSGFMS was the most important system of economic statistics in Canada.

For purposes of illustration please find below top-level CSGFMS terms used for: (a) assets & liabilities of government in Canada; and, (b) revenue and (c) expenditure items.  These terms are top-level in that each is composed of various sub- and sub-sub-categories (CSGFMS, Statistics Canada Catalogue 68-506, Occasional).

CSGFMS

ASSETS & LIABILITIES

REVENUE

EXPENDITURE