Government budgets: what they are, why they matter, and how to read them

The first thing to know about reading a government’s budget is that a government budget is not a ‘budget’ in the common sense of the word. You and I might have a personal, family, or business budget that lays out how much we can spend on food, entertainment, luxuries, etc. and still meet our savings targets, profit margins, or whatever it is we’re interested in having at the end of the day. A government budget (hereafter: ‘Budget’) is a different beast. Budgets are at least as much about politics as they are about finance, and it shows.

But before we discuss the meat of how to read and interpret a government budget, it is helpful to get some terminology out of the way. The Budget is often confused with its two cousins; namely, the Public Accounts, and the Estimates.

Deciphering the lingo: the Public Accounts, the Estimates, and the Budget

The Public Accounts are essentially the audited financial statement for the government over the preceding year. They can tell you how much the government spent over the course of a fiscal year, and where, but they tell you nothing about how the government will spend its money next year.

The Estimates, by contrast, provide the government’s proposed spending plan in eye-watering detail. There’s a good reason for this. The information provided in the Estimates is reproduced as the schedule to an Appropriation Act (also known as a supply bill, or a money bill); whose passage by Parliament funds the government. In other words, the government is entitled to no more money than it deemed required in the Estimates it presents to Parliament as part of a supply bill. You can appreciate that not everything that the government will want to do is necessarily presaged at the beginning of the fiscal year. This is why the government uses so-called ‘Supplementary Estimates’ to inform supplementary supply bills; to keep the government accountable to Parliament by requiring that Parliament sign off on every dollar the government intends to spend.

Neither the Public Accounts, nor the Estimates make for light reading. For the most part, they are each comprised mostly of labeled charts. They are all business; there is no narrative and there are no announcements or special effects. This is where each differs most strikingly with the Budget.

The Budget is essentially a communications document with numbers attached. More than anything else, it is the financial expression of the government’s political priorities for the coming year. This fact takes on special significance for a pre-election Budget such as the one that was produced by the federal government in March, since its contents will foreshadow the government’s priorities not only for the next year, but for its next mandate as well. But unlike the Estimates and the supply bills which they inform, budget announcements have no legal authority and there is no legal obligation for the Budget to be a true expression of how the government ends up spending its money.

A final word of caution before we turn to brass tacks: don’t make the mistake of comparing figures from the Estimates to the Budget. The Estimates and the Budget use different accounting methodologies (e.g. cash versus accrual accounting; net versus gross spending etc.) and are intended to accomplish different things.

Why do Budgets Matter?

If the Budget mostly just a communications tool, then why do the media, interest groups, and politicos pay so much attention to it? There are three major reasons:

  1. The subject of the Budget is intrinsically newsworthy

This may seem like circular reasoning but it goes to a broader point. Everyone in the political system has an interest in knowing how the government intends to govern, since that will give meaning and colour to the impressions and expectations of subscribers, stakeholders, voters, and the public. The Budget is the clearest expression of what matters to the government, as evidenced by how it chooses to communicate and where it decides to put its money. As a member-based organization representing healthcare organizations, HealthCareCAN has an interest in knowing how health and healthcare rank on the government’s list of concerns and which subjects within that broad field consume the balance of the government’s attention. Our members expect us to analyze, synthesize, and communicate these details to them, to be knowledgeable about them, and to use them to influence the national conversation and the behaviour of government.

  1. The Budget isn’t just a budget

The budget is not only about communicating how the government intends to spend its money. Over the years, it has also evolved into the government’s main tool for making high-profile announcements on taxation, programs, policy, and regulations. Some of these address the health system directly. For instance, the past year’s national conversations on Pharmacare have been driven in large measure by an unanticipated announcement in the federal government’s 2018 Budget. While the announcement did not entail a commitment of funds to support Pharmacare, it did involve developing a process to implement a national Pharmacare programme.  That in-turn influenced the 2019 federal Budget, which committed $35 million over four years to work towards developing a Canadian Drug Agency to help administer a national Pharmacare programme.

  1. The Budget feeds narratives about the economy

The Budget includes a fiscal plan, which shows how much revenue the government expects to collect, how much it expects to spend, and how it plans to manage its debts. This propels the narratives of political parties and public commentators, who use the information to develop commentary on whether the government’s balance of payments is healthy for the economy and whether voters should be happy. This element isn’t usually the premier focus of interest groups, which tend to focus on issues tied to the groups and sectors they represent. But at the same time, interest groups cannot afford to be entirely indifferent to the narratives that come out of a Budget. The activities and demands of interest groups need to be sensitive to the state of the economy; or more accurately, to the public’s perception of the state of the economy.

For further reading, this blog post has been summarized along with Charlie’s tips and tricks on how best to read a budget to get the most accurate and valuable information about what it means to your organization. Read the rest here.

 

Charles Thompson is HealthCareCAN’s resident Policy and Government Relations Advisor, holding several years’ combined experience in provincial and federal politics, health policy, and health advocacy. His policy files within HealthCareCAN include: Antimicrobial Resistance and Stewardship, Health Critical Infrastructure and Cyber Security, Indigenous Health, and sundry bits and pieces related to pharmaceuticals and health technologies. He also serves as an elected member and Treasurer of the Centretown Community Health Centre’s Board of Directors in Ottawa.