Monday, 9 January 2012

Before we ask government to spend, let's ask one simple question: how will we pay for it?

Although the next provincial election is over a year away, we can expect 2012 will bring us an ever-growing list of demands for more government spending from opposition parties, interest groups and others.  No doubt government will also have a few of its own announcements about dollars it intends to spend or save. 
Of course, it’s absolutely essential that we keep track of how much government spends.   But the way we usually talk about government spending isn’t very illuminating or constructive.  I have a suggestion that would, if implemented, make our political discourse more productive, and maybe even also give us better government.
It’s simple: Ask how we will pay for it.
Yup.  That’s it.  Whenever anyone - opposition party, interest group or your neighbour - says government should increase spending on something, ask where the money will come from.  Will it be increased taxes or fees?  Or a reduction in spending somewhere else?  Which program will be cut in order to find the money for this new demand?
That’s how we make spending decisions in our personal lives.  It’s also how government actually makes spending decisions, setting one demand off against another and trying to decide what programs and services to fund, and at what level, from taxes and other revenue.   
But this usually isn’t how we speak about public expenditures.  Most of the time the demands are made in isolation from each other.  We’ve all listened to news stories the whole point of which is to highlight a hardship or problem that could be fixed, if only government did something.  And doing something almost always means spending more.   But it’s rare that the person making the demand is asked the kinds of questions that I am talking about here.  
It’s as though politicians are just standing knee deep in a bottomless pit of money waiting for the nightly news to give them a dozen new ideas for how to spend it, when government, of course, is really just you and me and our precious (and finite) tax dollars.
Interestingly, these questions have been asked over the past week or so in some of the media commentary on NDP MLA Jagrup Brar’s “month on welfare” campaign.  Mr. Brar and the NDP want government to raise welfare rates by 10%.  Some commentators have pointed out that the cost of a 10% raise in welfare rates is approximately $120 million per year, and some have actually asked where the money will come from, given government’s tight fiscal circumstances.  (So far as I can tell, Mr. Brar and the NDP have not answered that question yet.)  
But this is really the exception that proves the rule.   
Now of course, it’s not quite as simple as I suggest.  Sometimes we need to pay close attention when people are explaining how to pay for their particular spending priority. For example, over the last few days, some legal aid advocates have been saying there would be plenty of funding for legal aid if government simply dedicated the revenue from the tax on legal services to fund legal aid.  Now this may sound like an answer to my question, but it’s no answer at all.  Because the reality is that the taxes collected on legal services go into general revenue - where all tax revenues go.  And general revenue is used to pay for all government services, including health care, education and welfare, as well as legal aid.  So when someone says that the tax on legal fees should be dedicated to legal aid, they’re making it sound like it wouldn’t cost anything to increase legal aid spending, but in fact if we adopted this proposal we would pay for increasing legal aid by reducing other government services.
When I say "how will we pay for it", I don't mean a blanket statement about making corporations paying their fair share, hiking taxes on the super-rich, or just simply cutting “wasteful” government spending. I mean thinking about how each of us, personally, will pay for it.  Are we willing to pay more taxes and fees? Are we willing to receive less service? And to what degree for each?  

Clearly, to give effect to my suggestion, we will have to learn how to ask good questions.  But I believe that if these questions were routinely and automatically part of our public political discourse (and maybe office water cooler or beer parlor conversations, too!) the effect would be something close to transformative.  We would be forced to come to terms more directly with our priorities for government spending, and to think about the choices that have to be made when, as is always the case, there are more ways to spend money than there are dollars available. 
And if we stopped permitting each other to pretend that government can do everything, we might make better decisions about what government really can afford to do.

2 comments:

  1. Mr. Plant, you said:

    "Yup. That’s it. Whenever anyone - opposition party, interest group or your neighbour - says government should increase spending on something, ask where the money will come from. Will it be increased taxes or fees? Or a reduction in spending somewhere else? Which program will be cut in order to find the money for this new demand?"


    Interesting that you did not include 'government' in that list of groups we should ask where the money will come from.

    For example, should we not, using your logic, ask the following question:

    "Did PavCo and, by extension, the government of British Columbia ever ask where the money was going to come from to pay for the new roof and renovations for BC Place, the costs of which are now reported to be (at least) $563,000,000?"

    And if they did ask that question, what was the answer, exactly, at the time the decision was made given that the market crash had already occurred?

    Thank-you.

    .

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  2. Good point.

    The focus of my interest was on the demands made by people and groups for more government spending, but of course the same question can and should be asked of government itself.

    Your example also highlights the differences for this analysis between operating and capital expenditures.

    With respect to operating expenditures, I think it could fairly be said that at least at the macro level government does answer my question whenever it tables a budget. The budget estimates show where government expects to get money from, and how it intends to spend it. The spending figures represent the decisions (or choices) government has made, and by implication, the priorities it has set, among the many needs and demands for spending. So, for example, if revenues are flat, a dollar increase in health care spending will have to be found from some other ministry or program. We can all debate the wisdom of those choices, but at least we can see the choices government has made. My concern is that, too often, folks who make demands of government don’t acknowledge the reality that public expenditure is about choices, and I believe we would be better off if we spoke of government expenditures more deliberately in terms of choices, rather than stand-alone demands.

    With respect to capital expenditures, I do think government should do a better job of explaining where the money comes from (ie, borrowing) and the consequences of choosing one capital priority over another. I have been thinking of writing a blog about the current situation, where government seems to be especially conscious that additional capital spending will have an impact on the debt-to-GDP ratio that, in turn, could affect the province’s credit rating, that in turn would drive up borrowing costs and make it harder to achieve a balanced budget within its currently legislated timetable. (I wrote about balanced budget legislation in an earlier blog.) In this context, it is absolutely appropriate to ask why government made the choices it did about the BC Place renovation, the impact of those choices on other capital expenditure options and where government expects to get the funds to pay for the renovation. I don’t have any insight into those questions beyond what I’ve read in the media, but clearly there are lots of folks who have questioned the wisdom of spending half a billion dollars to renovate a stadium, given the other pressing needs for capital expenditures.

    Thanks for commenting. I am just getting started in this blogging thing, and I know that I will not have the time to respond to all comments, but I appreciate the opportunity to continue this particular dialogue.

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