Canadian Parliamentary Budgets and the Real World

People plan. Governments plan. In either case, those plans tend to be known as budgets. But have you ever wondered how well the plans contained in a government budget translate to real-world goodness?

On the one hand, the odds seem stacked against us: constrained by partisan political calculations and struggling against the chaos and weight of their huge bureaucracies, how could any government get much done? But on the other hand, they do have access to vast power and resources and their claims and promises do sound grand.

So I thought I’d take a look back at a couple of historical Canadian federal budgets and compare them to actual measurable results from subsequent years. I can do this thanks to the rich information resources made publicly available by the Canadian government itself. Specifically, I’ll draw on original budget documents hosted on the website budget.gc.ca, and on some of the valuable economic data found on the Statistics Canada website.

In the interest of full disclosure, as a long-time small-government advocate myself, I came into this exercise expecting the worst.

Our first target will be Prime Minister Stephen Harper’s 2011 budget. I chose that one because Harper’s Conservative party had another four years in government, more than enough time for us to see any impact their policies had on Canada’s economy.

The second budget was Liberal Prime Minister Justin Trudeau’s first attempt after winning election in late 2015. The budget itself was only tabled in 2016. We’ve got at least three years of good data available to us, so we should have no trouble assessing the results.

We’ll begin with Stephen Harper’s “post recovery” budget presented in 2011, three years after the financial crisis of 2008.

The 2011 Budget (Conservative Party: Stephen Harper, Prime Minister)

Here’s a big-picture “mission statement” intended to present the budget’s larger themes:

“Supporting Job Creation by helping businesses and entrepreneurs succeed, keeping taxes low, investing in projects of national importance, and maintaining Canada’s brand as one of the best places to invest.”

The first relatively specific promise, then, was to encourage foreign investment in Canadian businesses. We’ll try to find out whether that actually did happen.

There were, of course, other promises. I’m going to address just a few of them, selected because their results should be relatively easy to validate. In that spirit, the budget promised to:

Extend the work-sharing program and the Targeted Initiative for Older Workers to help Canadians in some of the hardest hit areas stay in the workforce.

Did employment among older Canadians actually increase?

“Provide a temporary Hiring Credit for Small Business to encourage additional hiring by this vital sector.”

Did employment in small businesses increase?

“Extend the temporary 15-per-cent Mineral Exploration Tax Credit for an additional year (until March 31, 2012) to continue to help companies raise capital for mineral exploration.”

Were there noticeable improvements in the ability of mineral exploration companies to raise new investment?

“Contribute $150 million toward the construction of an all-season road between Inuvik and Tuktoyaktuk that completes the Dempster Highway, connecting Canadians from coast to coast to coast.”

Did all that stuff happen? Let’s see for ourselves.

Foreign investment

Did foreign investment in Canada rise in the five years following the budget? As you can see from the chart, it certainly did. According to Statistics Canada, in fact, foreign investment rose from 603 billion dollars in 2011 to 810 billion in 2016. That’s a 25% increase.

Of course, correlation doesn’t necessarily imply causation. There might have been other factors in play lying beyond the control of this particular government’s new policies. We can’t prove that all or even most of the increase happened as a direct result of our budget. But it’s certainly a distinct possibility.

I’ll rate this one a “win” for the Conservatives: their policy at least seemed to have a positive and measurable outcome.

Employment among older Canadians

Ok. So how about those work-sharing and Targeted Initiative for Older Workers programs? Did they result in any increase in the number of older Canadians finding employment? Here, too, Statistics Canada has good data.

As you can see from the next chart, the number of workers 55 and older employed across Canada rose consistently from 2.2 million in 2011 to 2.7 million in 2016. Those are absolute numbers. But if, say, the total population of Canada rose that much or more during the same period, then the employment increase (18%) wouldn’t mean much.

As it turns out, Canada’s population rose from 34.5 million in 2011 to 36.9 million in 2016. That’s an increase of around 6%. It’s true that that doesn’t take into account demographic changes associated with the ageing of the population. But when you consider how population growth (either through immigration or birth) skews young, I believe it’s enough to give us a decent view of the numbers.

So based on what we can see, this too should count as a promise kept.

Small business employment

Did the temporary Hiring Credit for Small Business really lead to businesses going on a hiring spree? Once again, as you can see in the chart that follows, the numbers show growth - from 1.4 million in 2011 to 1.8 million in 2016.

That 25% growth far outpaces the 6% general population increase we’ve already seen. Once again, of course, correlation is not proof of causation, so our minds should be open to the presence of other possible causes.

Mineral exploration

Before we dive into the wild world of mineral exploration investment, it’ll be worth spending a few moments defining the term “investment.”

In general, investment covers the transfer of capital to active commercial entities with the goal of enhancing their productivity and profitability. Investments can take the form of a full share of the company’s value, or of debt instruments like loans or bonds that must eventually be repaid.

The investment source with which you’re probably most familiar would be shares (in publicly traded companies) that are purchased through stock markets. But government subsidies or tax credits and corporate infrastructure spending would also qualify.

Looking back to our budget, your next question might be “What is it that could make ‘Canada’s brand one of the best places to invest’?”

Here, a few key areas come to mind. Business success depends on access to a labor force that’s trained and ready to do the job. Research and development infrastructure (often in cooperation with local universities) can also make a difference. And, in the case of mineral exploration, the potential presence of untapped sovereign mineral deposits is also going to be a big deal.

Governments can make a difference in only the first two of those. (Well, I suppose a government with a powerful, mobile army and a poor understanding of international law could theoretically make some headway on the third, too.)

But the domain where governments have the most sway in attracting investment is in crafting a regulatory and tax environment that welcomes business investment. This is what was meant by the budget reference to the “temporary 15-per-cent Mineral Exploration Tax Credit.” The METC, by the way, is still a feature of Canadian tax law. Like most public entitlements, only its “temporary” designation seems to have changed.

At any rate, did the government measure help? Unfortunately, as you can see from the figure, the Equity financing on the TSX and TSX-V exchanges data from those years suggest it did not. Now there may have been external factors at play, but 2011 was a tough year to beat.

However, there may have been other kinds of investment in the sector that didn’t come through public exchanges. One example is direct investments by the giant mining operations in what are known as junior exploration firms. In that category, figure 5 shows you steady growth - at least after 2013.

Still, considering the sheer scale of the equities market in comparison to internal investments, we’d have to rank this one as a fail.

The data representing mining investments comes from the document: State of Mineral Finance 2019: At the Crossroads (PDAC: Prospectors and Developers Association of Canada (and Oreninc) published by the Prospectors and Developers Association of Canada (PDAC) and Oreninc.

Was the Dempster Highway completed?

One more budget promise, and it’s an easy one. Did the Conservative government keep its word about that highway? In fact, the Inuvik–Tuktoyaktuk Highway (extending the Dempster Highway) was completed on November 15, 2017, thanks in large part to $200 million of federal money.

So that’s a yes.

The 2016 Budget (Liberal Party: Justin Trudeau, Prime Minister)

Contents of the 2016 budget appear in a Budget in Brief document. Important promises and policy statements are organized into “Measures”. We’ll look at six of those.

Child Poverty

Here’s what the Trudeau budget says: