Fiscal Position of the Provinces: The 1980 Budgets, by Marie Burrows, The Conference Board of Canada, 1980, 7 p.

This occasional paper (No. 8) is concerned with the relative financial position of Canada's ten provinces as conveyed through their respective 1980 budgets. This comparative assessment is made through an overview of the prevailing provincial budgetary revenue and expenditure balance, followed by a tabular analysis of expenditures by broad service functions in each province. Such an emphasis on the expenditure side appears to have displaced a concurrent appraisal of the fiscal capacity of each province to fund its committed service expenditures.

This paper is offered in four parts, with the first devoted to a comparative study of the current account balance among the provinces. Five provinces, up from three in Fiscal 1979, have budgeted for deficits this year. Quebec's $1.7 billion deficit is three times greater than the combined deficits of four provinces: Nova Scotia, Ontario, Manitoba and British Columbia.

It is interesting to note than an even number of provinces is expected to yield surpluses. Of these, Alberta's balance sheet of revenues and operating expenses shows a surplus of $3.69 billion, a magnitude of surplus which has adequate capacity to offset the combined deficits of the five provinces. Such a magnitude of surplus expected by the Alberta Government (and prior to an oil and gas pricing agreement with Ottawa) clearly portrays a state of imbalance in the fiscal positions of the provinces. One is tempted to propose the addition of sources of revenue to the key indicators of the fiscal position of each province, based on the understanding that the fiscal position of a province is not only indicated by the surplus or deficit position but also by the province's ability to finance its required expenditures.

The second part of this paper offers a comparative analysis of the gross capital expenditures of each province. It indicates that capital investment of the provinces as a whole is expected to be 7.7 percent higher than last year. Within this, Ontario's capital expenditures show virtually no change from last year, while Alberta's capital spending will increase by 25 percent.

It is difficult to be convinced that the distinction between current and capital expenditures is a strong one since most of the provinces do not separate their current from capital expenditures. For this reason, the impact of capital expenditure on the capital market cannot be over-emphasized.

The third part of this paper compares the net cash requirements of each province in 1980. Apart from Alberta, which is expected to have a financial surplus of $2.3 billion, all other provinces budgeted for a net cash requirement. It is worthwhile to note that Quebec has budgeted for a requirement which doubles the estimate projected by Ontario. The main reason could he that the Government of Ontario has been in an expenditure restraint program since 1975 and has committed itself to balance the budget in the early 1980s. Net cash requirements among the provinces range from a 22% of total expenditure in Newfoundland to a 33% surplus in Alberta. In this measurement, Ontario outperforms all other provinces except Alberta and British Columbia.

The last part of this paper provides a comparison of spending in education, health, welfare and related services and debt charges. The bulk of provincial spending is on education and health which makes up about 52% of total provincial expenditure. Spending on all social services is the highest in B.C. and Ontario, at 67% and 63% of their respective total expenditures. By contrast, Alberta spends less than half of its total expenditure on these same services.

The magnitude of debt charges indicates a province's previous reliance on borrowing for its expenditure requirement. On the basis of tabular analysis, it appears that the western provinces have significantly lower debt servicing charges as a percentage of total expenditure than that of the central and eastern provinces. However, the growth rate of all provincial debt charges at a further 17 percent this year does invite concern, as suggested by the paper.

This occasional paper continues to make a contribution to the understanding of public finance in a meaningful way. Not intended to discount the merits of this paper, one hopes that other relevant fiscal data might tie brought together in some comparable form. For example, the relative fiscal positions of the provinces could be more explicitly highlighted by including the absolute magnitude of the provincial budgets in one of the comparable units of measure. One is also tempted to suggest that future papers assess the impact of these provincial budgets as a whole on the Canadian economy. Such an evaluation might shed light on the fact that provincial governments collectively have a total expenditure of over S56 billion, representing 20 percent of Canada's GNP.

L.C. Chen (Ph.D)

Senior Economist Fiscal Policy Division

Ontario Ministry of Treasury and Economics

and

W.S. Wu (Ph.D.)

Chief, Legislative Research Service

Ontario Legislative Library'.