Prudent Budget Planning and Budgetary Process Effectiveness: The Canadian Federal Government’s Experience (Working Paper 47)

In 1994, the Liberal government introduced a structured approach to prudent budgeting to provide the fiscal discipline needed to meet its debt reduction targets in which explicit prudence factors were introduced into the fiscal framework to reduce the amount of fiscal flexibility available for allocation in each annual budget. Although that framework was successful in contributing to the elimination of persistent budgetary deficits, this paper advances three linked arguments: • that additional but undisclosed prudence factors were also introduced into the fiscal framework to attenuate the political risk of missing budget targets; • that these undisclosed prudence factors are one cause of a number of unintended budgetary outcomes that put the effectiveness of the budgetary process at risk; and • that there is nothing inherently politically partisan about the Liberal’s approach to prudent budget planning and, changes to terminology and display notwithstanding, the present Conservative government has continued to apply most elements of that framework in its budgets. Moving from a single-year budget target to one that is expressed as a cumulative total over the election cycle is discussed as one option that would help preserve the merits of prudent budgeting.