The week between Christmas and New Year’s is so slow for news that one of the most intriguing stories out there — really! — is the “accounting change” that raised the federal government’s deficit estimates for the next five years by a total of about $28 billion. Ottawa’s fiscal position suddenly looked a bit worse overnight, not because anything had happened in the real world or in the government’s revenues and expenditures, but because the finance ministry had adopted a different method of accounting for unfunded pension obligations from the past. (That is, these obligations to federal employees were incurred in the past, specifically before the year 2000; we still have to pay for them in the future.)
This event has raised an interesting argument among people who all have more or less the same amount of expertise on the subject — which is a hint that there is no objective right answer to the accounting question. On the other hand, this “accounting change” isn’t just an idle theoretical matter. It’s probably more like “a real phenomenon that is being reflected in the budget in a one-time, very sudden, somewhat unnatural way.”
What happened was this: beforehand, the government was calculating the net present value (NPV) of its pension obligations using a historical interest rate — specifically, a weighted average of what it received from its long-term bonds over the past 20 years. This is a backward-looking measure, and in this case it captured years of higher interest rates than the ones lenders will be able to obtain if you believe the futures markets.
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See Also:
(1) Trudeau just doesn’t get Western alienation as he inflicts two more hits to the West’s economy
(2) B.C.’s top court rules for $6.6-billion Coastal GasLink pipeline, against Indigenous law
(3) We’re Still All Canadians For Now, Eh?
(4) Province delays sales of cannabis vapes, angering producers and retailers
