« Russia or China - Who Should the US Worry More About? | Main | US Budget 2015: Some Quick Thoughts »



I feel like using CPI as a baseline when it comes to government spending is a poor choice. When we talk about federal and provincial spending we talk about them as percentages of GDP, which I think makes far more sense. CPI is a useful index for consumers, but the things that governments buy are very different. A good chunk (top of head guess is "around half") goes to paying for people, whether as outside contractors or internal employees. And if these people are going to see real wage growth, government spending on this portion of its budget is going to have to exceed CPI. If private sector employment has real wage growth, then in order to retain the same quality of employees, government wages must rise in step.

Even the portion of spending not spent on people isn't very well tied to CPI. The "stuff" that cities buy a lot of - fuel (for buses, maintenance vehicles, police cars, etc.), concrete, asphalt, water, are purchased in vastly different proportions compared to consumer spending. For this reason, some cities maintain a municipal price index (MPI) to give their councils and citizens a baseline for what the baseline for maintaining current levels of service is. The City of Edmonton's is at (http://www.edmonton.ca/business_economy/documents/City_of_Edmonton_MPI_2013.pdf), and is alway higher than CPI inflation, anywhere from 25% to 250% depending on the year. The fairest way to determine what a real increase in municipal spending looks like is by using a per capita number adjusted for MPI inflation.

You might still see some growth over the 1995-2012 even using a fair inflation definition. I don't know what the '90s were like elsewhere, but here they were disastrous for cities. Edmonton, for instance had a number of provincial responsibilities (ambulance service, social housing) downloaded onto it without any money to pay for it, and at the same time has a no tax increase (not even inflation-tracking) policy in place for a couple years prior to the 1995 baseline (1993-1997). There was also a much longer history of deferred maintenance that eventually came home to roost, and we've really only started the decades long process of catching up on that. There had too be some catch up at some point. Not sure if this applies at a national level, but I suspect there are similarities elsewhere.

Basically what I'm trying to get at is that the idea that municipal spending is not in control because it exceeds a the combined increase justified by population growth + CPI inflation over an arbitrary 17-year period is a ridiculous conclusion.

Well the conversation has to start somewhere. Let's try a different deflator - the Government Current Expenditure Implicit Price Index. Over the period 1995 to 2012 (by the way, its not that arbitrary a time range. The data in the Federal Fiscal Reference Tables for this comparison starts in 1991 and I wanted to look at finances after the effects of the recession and government restraint of the early 1990s) it grows by almost 60 percent. So you can make the case that "inflation" for all governments is higher than the CPI but even with this higher number, local and provincial government spending still rises a bit faster than population and inflation - that is real per capita spending has gone up. Local government spending has not gone up as fast as GDP meaning that as a share of GDP, municipal government spending is down - as is federal and provincial spending. Should municipal government spending be going up as a share of GDP because it is "more important" given the infrastructure deferrals of the 1990s? Well, just about every level and sector of government spending makes similar cases about their needs - I do not find municipalities unique there. As for Edmonton having its own municipal price index to make its case, I find that interesting. Edmonton may indeed may some unique factors or conditions that makes its expenses different from other cities but all cities can play that card. In my own city, whenever a comparison is published showing that its taxes or spending is out of whack with cities of similar size, the city politicians and administrators inevitably come out with the line that "apples are being compared with oranges." Their point seems to be is that their city is "unique" and should only be compared to other cities when the outcome is favorable. One of the key problems with local government expenditure comparisons in Canada is that municipal finance data is diverse, generally hard to get and not always that transparent - something I believe a CD Howe Report looked at some time ago. In terms of my conclusions, I think my main point was that local governments are complaining because their transfer revenues are indeed down. Their total revenues are down when revenues at the other two levels are up. I think they have a legitimate point here that does not appear to have gotten them much media attention as they have done a poor job of making this point in the media. Local governments are so busy comparing apples and oranges that they often miss the view of the orchard. As for doing more to get their spending under control - yes, they could. All governments can always do more to spend taxpayers money responsibly.

On the expenditures side, it would be (ahem) worthwhile to compare growth in opex, capex, transfer pmts to individuals, and debt payments over this period, by level of gov't.

The comments to this entry are closed.

Search this site

  • Google

Blog powered by Typepad