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January 31, 2011
Canada's Federal Deficit Deceit
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Looking for updated information? Check the finance category for all Canada Debt and GDP entries.
I'm referring to the non-balanced federal budgets for the last two fiscal years. We know that the federal government has told us to expect "deficit budgets". Or in other more colloquial terms that my grandfather would have used: "living beyond our means". Spending more money than we take in. But how much are we actually over-spending by? Although the raw figures are given ($55.6 Billion dollars) it's hard for the average reader to put that into perspective. How does that compare with previous years? Here is the graph they want you to see (I have highlighted last fiscal year):
Wrong. Here is the graph plotted in terms of actual dollars (again with last fiscal year highlighted):
To enhance the comparability of results over time and across jurisdictions, the budgetary balance and its components are often presented as a percentage of GDP.
Source: Public Accounts of Canada, 2010, Volume 1, s. 1.5 I don't agree with their use of the word "often". I have never seen it presented solely this way in the past, usually both numbers are shown (actual dollar value and percentage of GDP). Tellingly, all of the annual financial reports published by the Receiver General up until this latest one have included actual dollar values. The only logical conclusion that I can draw from their omission, and the fact that they acknowledge it, is that they knew there was no way to dress up the graph of actual dollar values to look good. So they simply omitted it in order to make their report look more palatable to the casual reader and then made up a bad excuse as to why. My stats professor would have loved to shown this example in class. Posted by Hammer at January 31, 2011 04:43 PM |
I first heard the phrase "lying with statistics" back in my undergrad stats class in 1993. The professor showed us how the same set of data could be manipulated in graphs and charts to support different conclusions. I suspect that Canada's federal government is attempting something similar with their latest set of financial statements.
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Comments
I am eagerly awaiting the 2012 edition of the "Canada's Debt Versus GDP" graph. I've noticed that you have updated it in January of the last four consecutive years. Thanks for the work of putting it together.
I meet regularly with a group and normal topics for discussion have become debt, credit as well as national economic and monetary policy. Pretty serious conversation over coffee but given the times I suppose it is quite topical. I believe this graph as well as the one comparing budget deficits/surplus to the party in power will be very well recieved at our next get together. Thanks again for putting them out there.
@ jake1492 we are not talking about a time difference of 100 years, which of course would mean you would have to take the changing value of the dollar into account. We're talking about a difference of 1 to 2 years. No adjustment is needed. Actual dollar values do matter, and they do make sense here.
I was arguing that they should have included BOTH. I think they purposefully omitted the one that made the deficit look worse.
The author is wrong in his conclusion that it is better to compare absolute dollar values rather than percentage of GDP.
In the case of government debt the thing that really matters is it's impact on the country's ability to deal with that debt. If the debt is relatively small compared to the size of the economy then it is easy to deal with. A very small dollar value of deficit in 1900 might have been much more difficult to deal with than a much larger dollar value deficit in 2000. There are two major variables, one is inflation and the other is growth in population and productivity. It is actually easier in later years with larger GDP's do deal with the same dollar value of debt than in earlier years with small GDP.
c'mon author, surely you get that.
I'm having trouble finding similar graphs and history for SPENDING, not just deficits... any tips?
I wonder if they're not doing a little bit of special math on top of all this as I was expecting the deficit to be even higher considering that the Canadian bank bail-out was 75 Billion dollars. Shouldn't that coupled with all of the emergency stimulus spending have pushed the budget even more into the red or am I missing something?
Regardless, thanks again for posting such clear and concise graphics.