In a second of a series of essays recommending more fiscal accountability, Lennie Kaplan proposes a new legislative office. The office would assist legislators outside in provincial cabinet in holding government accountable for their fiscal plan. The new office would provide analysis of the cost of government programs.
Alberta needs a legislative budget office
Provincial governments across Canada, including Alberta, have seen their credibility decline over the past two decades due to inaccurate budget forecasts and a lack of comprehensive assessment of the costs of policy measures and programs, particularly policy measures and programs with significant medium- to long-term fiscal implications.
Weakness in legislative oversight over spending and the lack of legislative scrutiny over government policy measures and programs erodes public confidence and creates financial risks that can lead to overspending, budget deficits and mounting debt. Members of the Legislative Assembly (MLAs) in Alberta simply do not have effective tools to hold the government accountable for their fiscal policies, particularly as it relates to the costs of new legislation or new programs. The lack of access to independent analysis of fiscal plan documents and legislative and program initiatives informed by access to internal government information makes it difficult for the Legislative Assembly to hold government accountable. The proposed Emissions Reduction and Economic Development Policy (EREDP) is a prime example of a policy with numerous likely program offshoots that has significant medium- to long-term costs implications.
Globally, there are increased demands for transparency and accountability in legislative fiscal oversight, coupled with new and emerging global standards and best practice, as enunciated by the Organization for Economic Co‐operation and Development (OECD), and the International Monetary Fund (IMF), In fact, a number of jurisdictions at the national and subnational level have responded to increased demands for fiscal transparency, accountability and legislative oversight by establishing independent fiscal councils/institutions or legislative budget offices. “Fiscal councils (legislative budget offices) are independent public institutions aimed at promoting sustainable public finances through various functions, including public assessments of fiscal plans and performance.”
The use of fiscal institutions to provide oversight over fiscal policy is not new to Alberta. The Provincial Audit Committee was established primarily in an advisory role to government, with the following statutory responsibilities over the years:
- Deficit Elimination Act (1993): The Audit Committee was required to report publicly on the progress made by the government towards achieving a balanced budget and could inquire into any matter relating to the financial affairs of the government through a request of the Provincial Treasurer.
- Balanced Budget and Debt Retirement Act (1995): The Audit Committee was required to report publicly on the progress made by the government towards retiring the Crown debt (net debt), and could inquire into any matter relating to the financial affairs of the government through a request of the Provincial Treasurer
- Fiscal Responsibility Act (1998): The Audit Committee was required to report publicly on the progress made by the government towards eliminating the accumulated debt and could inquire into any matter relating to the financial affairs of the government through a request of the Provincial Treasurer.
- Fiscal Responsibility Amendment Act (2009): The Audit Committee reviewed and advised on the government’s progress towards implementation of the Financial Management Commission’s (FMC) recommendations on accounting policies and could inquire into any matter relating to the financial affairs of the government through a request of the President of the Treasury Board.
Over time, however, the Provincial Audit Committee functions have largely evolved from evaluating compliance with fiscal rules towards dealing primarily with issues relating to financial statement presentation and disclosure, accounting policies and pronouncements, and matters related to the preparation of the Auditor General’s reports to the Legislative Assembly.
It is time to restore legislative oversight over fiscal policy in Alberta. In 2014, the Official Opposition Wildrose Party introduced Bill 202: Independent Budget Officer Act. The proposed legislation, patterned after the Ontario Financial Accountability Officer Act, would have established the position of Independent Budget Officer, an officer of the Alberta Legislature, with a mandate to
provide independent analysis to the Legislative Assembly about the state of Alberta’s finances, including the budget and quarterly updates, and the trends in the provincial and national economies; when requested to do so by a committee of the Legislative Assembly, undertake research for that committee into Alberta’s finances and economy; when requested to do so by a committee of the Legislative Assembly that is mandated to consider the estimates of the government, undertake research for that committee into those estimates; and when requested to do so by a member of the Legislative Assembly or a committee of the Legislative Assembly, estimate the financial cost of any proposal that relates to a matter over which the Legislative Assembly has jurisdiction..
Unfortunately, the proposed legislation was defeated by the Progressive Conservative (PC) government of the day.
As a result of inaction over the past decade, Alberta is falling behind other Canadian jurisdictions in fiscal transparency and accountability at the legislative level. Legislative budget offices have been established in Canada at the national level (the Parliamentary Budget Office) and at the provincial level (the Ontario Financial Accountability Office). Legislative budget offices have also been proposed at one time or another in B.C. Saskatchewan, and New Brunswick.
The experience of other jurisdictions with independent fiscal councils/institutions and legislative budget offices is instructive. A recent IMF data base lists 51 institutions in 49 countries that have established fiscal councils/institutions or legislative budget offices, including Australia, the United Kingdom, the United States, Germany, the Netherlands, Ireland, Korea, Belgium, Brazil, Chile, South Africa, and Sweden.
In the United States, besides the highly regarded Congressional Budget Office (CBO) at the national level, state governments have created legislative budget offices. There are 49 such fiscal agencies in the United States, most of which provide professional non-partisan budget analysis. Thirty-three produce fiscal notes that analyze the budgetary impacts of proposed legislation. Most notable of U.S. state legislature budget offices are the California Legislative Analyst’s Office, the Utah Office of the Legislative Analyst, the Oregon Legislative Fiscal Office, the Pennsylvania Independent Fiscal Office, the Minnesota Legislative Budget Office, and the Texas Legislative Budget Board.
The IMF sees a number of positive attributes arising from the establishment of legislative budget offices. It states that
legislative budget offices can promote stronger fiscal discipline if they are well-designed. This includes operational independence from politics, the provision or public assessment of budgetary forecasts, and a strong presence in public debate. When these features are present, legislative budget offices are associated with stronger fiscal performance and better economic and budgetary forecasts.
According to Desjardins Economic Studies,
in keeping with what is happening elsewhere in the world, as well as in Canada and in Ontario, it…seems desirable for Canada’s other provinces to introduce a budget officer position featuring guaranteed independence and access to the departmental data required to do his or her job…Investing in such a body would bear fruit, as the investment would reap the same benefits as achieved by the jurisdictions that have introduced budget officer positions. The mandates of the new provincial bodies would have to be similar to that of Ontario’s financial accountability officer…Lastly, provincial governments could benefit by enhancing their credibility with the public, credit rating agencies and investors.
Canada’s experience with legislative budget offices has generally been positive. The IMF concluded that the Canadian Parliamentary Budget Office (PBO) had earned a reputation for good quality independent analysis for its research, costings, and forecasting work.
The OECD noted in their 2010 economic survey of Canada that
the PBO had proved useful at providing an independent…opinion on the federal government’s fiscal forecasts, which can only improve the transparency and debate around federal fiscal policy. It further recommended that the provinces should consider establishing similar independent fiscal agencies that can assess compliance relative to objectives and reinforce accountability.
Notable reports prepared by the PBO include: the Fiscal Sustainability Report; A Distributional Analysis of the Clean Fuel Regulation; Budget 2023: Issues for Parliamentarians; A Distributional Analysis of the Federal Fuel Charge under the 2030 Emissions Reduction Plan: Government’s Expenditure Plan and Main Estimates for 2023-24: Global Greenhouse Gas Emissions and Canada’s GDP; and the Economic and Fiscal Outlook.
At the subnational level, the Ontario Financial Accountability Office (FAO) is
considered one of the most important institutions for understanding Ontario’s finances. It does some of the best work to enable politicians, academics, journalists, non-governmental organizations, and members of the public to get a much better understanding of our province’s financial circumstances. FAO has also done ground-breaking reports on how much Ontario taxpayers subsidize the cost of electricity generation. Its report on the costs of climate change on areas of provincial responsibility was also work no other organization had attempted.… Its forecasts have generally proved to be more accurate than the Ministry of Finance’s. No other provincial institution is doing this work — certainly not in as independent a fashion.
Notable reports prepared by the Ontario FAO, include Ontario School Boards: Enrolment, Finances and Student Outcomes; Ontario’s Credit Rating; Economic and Budget Outlook; Ontario Health Sector: 2023 Budget Spending Plan Review; Ontario Public Sector Employment and Compensation; Long-Term Budget Outlook; Ontario’s Energy and Electricity Subsidy Programs; and Estimating the Budgetary Impacts of Changing Climate Hazards on Public Infrastructure in Ontario.
After years of delay, it is now time to establish a new Legislative Assembly Office in Alberta. A Legislative Assembly Budget Office in Alberta would ensure alignment with best practice in other jurisdictions and help the Alberta government achieve the goal of once again being a leader in fiscal transparency and accountability. The Legislative Assembly Budget Office should be established though the passage of an Alberta Legislative Assembly Budget Office Act. The Legislative Assembly Budget Officer should be an independent officer of the Legislative Assembly, selected with the consensus of a panel composed of members of the Legislative Assembly. Government ministries, boards, agencies and commissions should be required to provide accurate, timely information to the Legislative Assembly Budget Office to ensure it has the information needed to provide accurate analyses to the Legislative Assembly.
Policy Recommendation
Following along the lines the Ontario PAO, the mandate of the Legislative Assembly Budget Office should be as follows:
- Provide independent analysis to the Legislative Assembly about the state of the province’s finances, including the budget, and trends in the provincial and national economy.
- Undertake research into the financial costs or financial benefits to the province of any public bill that is before the Legislative Assembly.
- Undertake to estimate the financial costs or financial benefits to the province of any proposal that relates to a matter over which the Legislative Assembly has jurisdiction, including any program established by the Government of Alberta.
- Provide general advice to the Legislative Assembly on issues involving the long-term fiscal sustainability of government revenues and spending measures.
- Provide an annual opinion on the reasonableness of the estimates of revenue used in the preparation of the Fiscal Plan.
- Prepare estimates of the financial cost of election campaign proposals that registered political parties are making.
I believe that the establishment of a Legislative Assembly Budget Office in Alberta will strengthen legislative oversight over spending and scrutiny of government policy and program measures. The Office will support the Legislative Assembly’s role of financial control by helping to ensure informed scrutiny, debate, and approval over budgets and new policy and program measures. By fostering fiscal transparency and accountability, the Legislative Assembly Budget Office will help to augment public confidence in government fiscal policies.
Lennie Kaplan is a former senior manager in the Fiscal and Economic Policy Division of Alberta’s Ministry of Treasury Board and Finance (TB&F) where, among other duties, he examined best practices in fiscal frameworks for oil and gas-producing jurisdictions, including the use of fiscal institutions to improve legislative fiscal oversight. In 2012, he won a Corporate Values Award in TB&F for his work on Alberta’s Fiscal Framework Review. In 2019, Mr. Kaplan served as Executive Director to the MacKinnon Report on Alberta’s Finances. He recently retired from his position as Executive Director of Research at the Canadian Energy Centre.