Facing accusations he is running a deficit already, Conservative leader Stephen Harper denies the charge "No. That's absolutely not the case". Yet to date this year the Harper government has racked up more than $20 billion in new public debt, an amount far larger than during any similar time frame or period during the last 8 years. What is Stephen Harper hiding?

(Please pass this around broadly - copy and use as your own material or attribute to me as you please. Media are welcome to use this material with no restrictions whatsoever. All sources and an excel spreadsheet are provided at the end of this article as links and attachments)

The Short Story

Conservative leader Stephen Harper continues to claim that Canada is enjoying a surplus, yet his Minister of Finance Jim Flaherty this calendar year has racked up an operational deficit in six of the past seven reported months, totaling over $23 billion dollars, or $20.3 billion for this fiscal year to date. In either case these amounts are unprecedented during this decade.

A child, let alone a trained economist like Stephen Harper, can easily see that one of these things is not like the other, one of these things is not the same:

Stephen Harper is hiding this massive $20 billion dollar plus deficit behind the use of cleverly chosen words, but semantics can't hide the fact that our country's finances are in precarious shape at a time when world economic uncertainty has clearly caught Harper's government completely off guard.

In Stephen Harper's Own Words

Stephen Harper has repeatedly claimed his management is one of prudence, that his government is running a surplus, and on Tuesday he specifically said his government would not run a deficit (Reuters, Oct. 7 2008), after having danced around that issue of late (Calgary Herald, Oct. 6 2008).

Our position in this election is we're not going to run deficits Stephen Harper, October 7 2008

In an October 7th interview with CBC News anchor Peter Mansbridge, Stephen Harper was again asked about opposition claims that his government is already running a deficit. (Relevant sections appear near minute 7:20, and between minute 9:00 and 10:30 of the video at the link)

In the interview during one exchange Mansbridge asks Harper if he will allow the country to go into deficit and he specifically asks if claims by the opposition that the government is already in deficit are true.

Harper:

We are three billion in surplus so far this year and we were only projecting a two and a half billion surplus for the year.

Mansbridge:

So when the Liberals and the NDP suggest you are fiddling the numbers?

Harper:

No. That's absolutely not the case and you can see that in the growth of uh, the growth of our nominal revenue.

That's not an answer. "Nominal revenue" doesn't speak to the net balance and whether the country is operating in or facing a deficit. One has to look at both revenue and expenses, as any accounting 101 student learns in school. An economist like Stephen Harper should not be playing cute tricks with terminology or hiding behind cleverly chosen words to duck the issue.

The numbers do not lie. Using data from the Ministry of Finance "Fiscal Monitor", we can easily calculate for ourselves that Canada has been operating in a deficit in six of the past seven monthly reporting periods. In short, expenses have been higher than the total of revenue and cash on hand.

Not only has the country been living through an operational deficit for more than half a year, the numbers are huge, far out of the norm, as the chart leading this article clearly illustrates.

Coincident with a rapid unwinding of the world economy, government revenues are not keeping pace with expenses and this problem will only worsen from here. For millions of Canadian families what's happening is all too familiar - we can clearly see our country is going further into debt, even as Stephen Harper seems unaware and detached from the real world.

When families reach their own personal wall on spending and debt, they know what comes next - cutting back. The logical question for the leader of the Conservative Party is therefore what will Stephen Harper slash?

Harper Hiding Behind Semantics

While Stephen Harper is technically correct in stating that Canada has a budgetary surplus, if we look past the semantics, Canada is really facing, today, an operational deficit of proportions never before seen this decade. How can he claim otherwise? Its simple: Harper is hiding behind very cleverly chosen words. Simply put, budgetary revenue and expenses do not encompass all government revenue and expenses. These "off-budget" items can easily put the country in surplus, or in deficit, as is the case right now.

(See the end of this article for an excel spreadsheet attachment which provides all the raw data and an embedded chart.)

In contrast during the same period in 2007 the government had a 13.4 billion surplus; the difference between then and now represents an incredible $36.4 billion dollar swing from the positive to the negative. What's really going on Steven Harper and Jim Flaherty?

Particularly in these troubled economic times clever words and semantics should not be allowed to block a fulsome discussion over the real state of our country's financial picture.

Putting This In Context - Understanding the terminology

Conservative leader Stephen Harper has been hiding behind terminology without offering to Canadians the unvarnished details they deserve.

As terminology can be used to portray a picture which is misleading, lets put this in terms that every Canadian can readily identify with.

Imagine we are talking about our household budget. You run a household and your family brings a certain amount of income in each month to pay the bills and hopefully put some away in the form of savings or perhaps pay off longer term debts like mortgages.

You know what your monthly income will be, more or less, and what your expenses are likely to be on average. Once in a while most will have larger expenses, planned or by surprise, that perhaps require one to reach for financing - be it a credit card, or a short term loan - to meet. Examples might include a yearly car insurance fee or an unexpected repair bill.

The government isn't so different. It has income in the form of revenue largely raised through taxation and fees, and it certainly has expenses that are both planned and regular or are otherwise well known, as well as irregular expenses and the odd unplanned need to meet.

Here's a terminology table comparing regular household terms with their equivalent terms employed by the government of Canada:

• Monthly income = Revenue
• Monthly Income less Expenses = Budgetary Balance
• Irregular or unplanned expenses = Non Budgetary Transactions
• Monthly cash flow surplus = Source, while a
• Monthly cash flow shortfall = Requirement

Lets assign some variables to certain terms. Budgetary Balance we'll reference as variable "A" while Non Budgetary Transactions shall be labelled "B".

Lets label as "C" as net cash flow, or Financial Source (Requirement). This value is calculated simply as the difference between A and B, and it's this value which provides the charts and tables in this article with their important meaning.

Cash flow is a concept most Canadians understand intuitively. If you don't have cash in your wallet, or in the bank, but have needs which can't be put off, then there is no recourse - we go into (or further into) debt. Those debts might be charges to a credit card, or a short term loan, or a raid on the savings account our an IOU in the kid's piggy banks.

Like most families, the government routinely experiences ups and downs with cash flow. The chart above illustrates there is something of a pattern where government has greater needs than at other times of the year. Revenue doesn't always come in when the expenses do, thus from time to time its perfectly normal for the government to borrow money, to increase the public debt. Over the past decade Canada has been able to balance its books and enjoy surpluses, but what we see today is not routine at all, as the chart above clearly shows.

Even though it's normal for the government of Canada to meet its bills through issuing short term debt, it is far from normal for the government to have issued so much debt, so quickly, so early in the year. As it stands now the Harper government has issued more debt already this year than in any other year during this decade.

Canadians should rightly be concerned about this. Stephen Harper and his finance minister Jim Flaherty have been raiding our piggy banks, leaving us with a very big IOU, at the same time as government revenues will fall due to world economic uncertainty and recession.

Rising expenses (Harper government spending is up significantly) and falling revenues on top of all the debt which has already been taken on during Harper's watch is not what Canadians expect from their government.

Mr. Harper is misleading the Canadian people, hiding behind cleverly chosen words. Fortunately he can be held to account, as the evidence is perfectly clear: Canada is currently in operational deficit and facing the first fiscal year deficit in over a decade; It's all happening on Stephen Harper's watch.

Sources:

1. Interview of Stephen Harper by CBC News anchor Peter Mansbridge, October 7 2008. Relevant sections at 7:25 and between 9:00 - 10:00 minutes. Video link
2. The Fiscal Monitor, a service of the Ministry of Finance which provides summary financial information for every year dating back to 1996. Web page link
3. Excel spreadsheet providing a compilation of all financial source/requirement data (cashflow) for periods reported during this decade, data sourced from The Fiscal Monitor. Includes charts. Link to spreadsheet