Vaughn Palmer: Conservative view of accounting rules a hallmark of B.C. governments

OPINION: The B.C. Finance Ministry takes a very conservative view to expressing government surpluses, compared to the auditor general

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VICTORIA — On the day after the New Democrats released the public accounts for their first full year in power,  Auditor General Carol Bellringer insisted the bottom line was off by almost $6 billion.

Finance Minister Carole James announced July 19 that she had closed the books for the 2018-19 financial year with a surplus of $1.5 billion. Next day, Bellringer explained why, by her calculation, the surplus was actually $7.2 billion, almost five times as great.

“What we’re saying is that the financial health of the province is actually better than reported and that the accumulation of (the surplus) is quite significant.”

Quite significant was quite an understatement.

A budget surplus of $7.2 billion would be the largest in provincial history by far.

With that much spendable cash on hand, the New Democrats could double annual funding for housing, income assistance, and child care  and still have $3 billion left over. Or they could suspend the carbon tax, the property transfer tax and property taxes for a year and still keep the books in balance.


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Some of the instant reaction to the auditor general’s pronouncement was along those lines: If BC really were $7 billion in the black, the New Democrats should cut taxes, increase spending or both.

But long time observers were aware that the office of the auditor-general and successive B.C. governments have been at odds for years over the reporting of the bottom line.

Moreover, they are not arguing about cash on hand, a point conceded by deputy auditor general Russ Jones when the dispute was taken up by a legislature committee.

“Please note that the increase in surplus does not mean that the government has additional cash,” Jones told the public accounts committee last November. “In most cases, the money was either already spent or was earmarked for specific projects.”

The dispute is mainly an argument about how to account for restricted financial contributions, mainly those from Ottawa and mainly to pay for highways, transit and other capital projects.

The auditor-general maintains that under Canada’s generally accepted accounting principles, or GAAP, those contributions should be counted as revenue in the year in which they are taken in. The B.C. Finance Ministry maintains such targeted contributions should be spread over the life of the project being funded.

The ministry, citing a ruling of the national accounting board for the public sector, says the GAAP is sufficiently “flexible” to support either approach.


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Just in case, the province has also its own budget legislation to allow it to circumvent the more narrow interpretation of GAAP.

But for all the arcane aspects of the accounting debate, there are implications in the political realm.

Those were well-illustrated by an exchange at the public accounts committee involving B.C. Liberal MLA Ralph Sultan,  a Harvard-educated economist, and Comptroller-General Carl Fischer, the in-house keeper of the books in the Ministry of Finance.

Sultan noted the oddity of successive B.C. governments choosing to reject a finding by the auditor-general that would present a more favourable bottom line.

“One purpose of this committee is to see when governments are playing hanky-panky, trying to present a more favourable picture than, in fact, is reality,” said Sultan. “Here we have the opposite condition where, over the years the government is understating its financial performance. Why is this bias continuing?”

“It does seem a bit odd,” agreed Fischer, venturing a bit of un-comptroller-like reflection. “Anyone can see that there will be a preference in the short term to maximize revenue and be able to pursue programs or services or represent good financial management.”

The long term impact would be opposite.

“If we do follow a process of eagerly recognizing revenue as soon as possible, we’re not matching the contribution with the period in which the service is actually delivered,” said the comptroller. “We have to be very thoughtful about the obligation to actually deliver that program or service over its useful life.”


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The obligation doesn’t end when the money is in the bank or the project is finished. Hence the decision to spread the federal contribution over the useful life of the project.

This matters especially in B.C. because governments are obliged by law to strive every year for a balanced budget.

“If we recognize the revenue in year 1, when it’s received, and the expenses over the 10, 20, 30 or 40 years that the program is in place, we’re unable to match those up,” continued Fischer.

“Eventually the economy will turn. Government transfers may no longer be there. We would be suffering from less revenues, but all of those expenses that are commitments from previous government transfers would still be there. The effect will be to artificially restrain government spending on the programs and services that people in the public require.”

On that basis, it would be short sighted and irresponsible for B.C. to adopt the auditor-general’s view.

Both the previous B.C. Liberal administration and the current-day New Democrats have been guided by the cautionary logic voiced by the comptroller-general.

Note, too, that in awarding B.C. the highest credit ratings in successive years, none of the major agencies have adopted the auditor-general’s inflated view of the bottom line.

Bellringer, with her narrow interpretation of accounting standards, is the outlier. Regrettable, given the importance of her office in encouraging a responsible approach to public sector finance.