Feb 20, 2009

Accounting games of Olympic proportion


The long awaited 2010 security budget was finally unveiled today. The latest estimate pegs the cost of securing the Olympics at $900 million or just over five times more than the original estimate of $175 million. BC’s portion of the total now sits at $252.5 million or roughly three times more than its original price tag ($87.5 million). It is a small consolation that our share did not rise proportionally to the whole budget (five times).

If you were worried that the extra $165 million will cause our projected budget deficit to balloon, you can now relax knowing that our Finance Minister has taken care of this. As Rod Mickleburgh explains in today’s Globe:

… in an unusual, complicated arrangement, the province will not pay its portion of the added security costs directly to Ottawa. Instead, B.C. will satisfy its $165-million obligation by increasing its share of federal-provincial infrastructure projects to that amount over the next three years.

That way, the money may be accounted for as capital spending and left out of the province’s operating budget, keeping the projected deficit for the next year at $495-million.

Such accounting shenanigans border on dishonesty as they make it very difficult for British Columbians to keep track of the true state of provincial finances. They also uncover an important problem with Colin Hansen’s favourite analogy of the government’s budget being the equivalent to family finances and both having to “live within [their] means.” I don’t know about your family budget, but mine doesn’t have a separate “capital” account where debts can be stashed without otherwise tarnishing the balance sheet.

What really matters for the long-term health of provincial finances is the public debt and its size relative to GDP. It’s a shame that so much of the media coverage and public discourse is devoted to the “balance” in the operating budgets.