What do they mean by "net debt" anyway?

One of the most convenient ways to try to make a surplus larger or a deficit smaller than it really is, is to "cook the books." This was a perennial complaint of finance ministers at both the federal and provincial levels, who sought to blame their fiscal woes on their predecessors' bad management. To put a stop to this, the Liberals introduced the private sector standard of accrual accounting. This means nothing more than making sure payments and receipts are recorded at the time they are deemed to have happened, not when cash changes hands. For example, when we file a tax return and expect a refund, the refund is charged to the government as of December 31st -- not when it is paid out a few months later; if we have a balance owing it's due immediately even if we post-date the cheque to April 30th. It's based on this method that we have a debt owing of $481 billion as at March 31st of this year, when the 2006 fiscal year ended.

This is prudence at its simplest. What has Jim Flaherty done today? He's thrown all that out and introduced the concept of "net debt." He claims we can pay off the debt in just fifteen years. To do this, he has subtracted the unfunded surpluses in the Canada and Québec Pension Plans and the Employment Insurance Plan, then added back in provincial fiscal debts and unfunded liabilities in the provinces' respective Workers' Compensation Boards and Criminal Injuries Compensation Boards. (For those who are interested, here is the update in PDF format -- I will try to comment on what I like and don't some more tomorrow.)

Is that prudence? No. It's bullshit, plain and simple. As is Flaherty's announcement he cut income taxes earlier this year -- actually, he raised them, a half percentage point on the lowest tier, which hits everyone rich or poor.

There are some positive announcements in today's statement, such as the prospect of a working income supplement to get people off of welfare and up to a minimum income -- sort of a negative income tax. Thing is, that's exactly what the Liberals proposed a year ago. He also seems hell bent on reducing the GST another percentage point when our health, education and welfare systems simply can't afford it.

But the bottom line is, if Flaherty wants to eliminate the debt, he should play by the rules that the private sector plays by. They're called Generally Accepted Accounting Principles (GAAP) and they ensure that a dollar of debt or a dollar of surplus equals a dollar. No more, no less. Raising expectations like he did today is nothing short of irresponsible -- the kind of irresponsibility he showed when he created the private school tax credit in Ontario that was rightly repealed by the provincial Liberals a couple of years later.

Maybe having a snap election now isn't such a bad idea after all.

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