By Charles Lammam
and Hugh MacIntyre
The Fraser Institute
With governments across Canada preparing to release their budgets, Canadians can expect headlines announcing new government spending on this or that initiative. But in all the hoopla, what is often overlooked is the harsh reality that governments do not have a bottomless pit of tax money to spend. This point is particularly relevant as governments across the country struggle with chronic budget deficits, spending more than their revenues allow.
The fact is, spending choices in one area invariably have broader effects on a government’s bottom line. Take spending on K-12 public schools, for example, a major expense for provincial governments.
From 2004/05 to 2013/14 (the last year of comparable data) total provincial and territorial spending on public schools increased from $44.3 billion to $62.6 billion. That’s an increase of 41 per cent.
However, as spending increased over the decade, enrolment in public schools fell by four per cent. Indeed, provincial governments have been spending more money to educate a smaller number of students.
In fact, spending on public schools has outstripped both enrolment changes and inflation (the rise in overall prices). As a result, spending on public schools per student has increased significantly between 2004/05 and 2013/14. After accounting for inflation, per-student spending is up to $12,427 from $9,876 a decade earlier.
As a recent Fraser Institute study shows, the increase in spending over and above enrolment changes and inflation has had adverse effects on government finances, spurring deeper budget deficits in many provinces.
Had governments across Canada increased their spending on public schools since 2004/05 simply to match enrolment changes and inflation, they would have collectively spent $12.7 billion less in 2013/14. With these savings, the fiscal situation in many provinces would have been markedly better.
In highly indebted Ontario, the provincial government would have saved $5.2 billion in 2013/14, cutting the deficit in that year in half.
Strikingly, Alberta’s $302 million deficit in 2013/14 would have been a $1.4 billion surplus had the government restrained spending on public schools to match enrolment changes and inflation. Prince Edward Island would have also enjoyed a surplus rather than a deficit in 2013/14.
In Quebec, the provincial government would have saved $2.8 billion in 2013/14 if spending on public schools had been restricted to changes in enrolment and inflation. These savings would have essentially allowed the province to balance its budget two years earlier, saving Quebec taxpayers from the burden of billions of dollars in new debt.
Of course, public school spending is just one line item in the budget of provincial governments. But these examples illustrate how spending decisions in one area can have broader effects on a government’s bottom line.
The failure to restrain increases in public school spending has had significant consequences, as provincial governments have run deeper deficits and increased the debt burden on future generations.
Charles Lammam is director of fiscal studies and Hugh MacIntyre is a policy analyst at the Fraser Institute.