Where your tax dollar goes

As we prepare for next week's federal budget, here's an interesting exercise: How much money does Ottawa spend and what are its biggest expenses? 

Most people think it's health care or provincial transfers. Most people are wrong.

The federal government spent $311 billion in the fiscal year 2016-17. The biggest single expense was elderly benefits. This includes Old Age Security and the Guaranteed Income Supplement. Unlike the Canada Pension Plan, OAS and GIS are not independently funded. Money comes from general revenues. Last year, these cost $48.1 billion, or 15 cents of every tax dollar. 

You can spend hours reading through hundreds of pages from the last budget. You'd read all about the Liberal plan to "build a stronger middle class." There are entire sections on "skills and innovation" and "tax fairness." But to find the basics upon which the budget is built, you have to go to page 256, to the first annex and sift through to the seventh table. And even that only flushes out part of the picture.

All this matters a great deal, if only because it's awfully hard to truly debate what should be in (or out) of any budget until we know where all the money goes in the first place.

"The most profound conversation we should be having," says economist Armine Yalnizyan, "is what do we get for our money and what are the benefits of how we're spending."

Wiggle room

Budgets have evolved from economic planning to political documents. They are printed into tidy books and given titles like an "Economic Action Plan" and "Building a Stronger Middle Class." It's hard to blame politicians who try to spin whatever spending measures they're introducing. The brutal truth of public finances is, governments don't really have much wiggle room.

Much of the spending is baked into the plan long before any politicians even get elected. In general terms, about a quarter of any budget goes to transfers to individuals (those elderly benefits we started with, but also Employment Insurance and Children's Benefits). Another quarter of the pie goes to the provinces (including the Canada Social Transfer and the Canada Health Transfer). Crown corporations, public debt charges and national defence combine for another 18 per cent.

Peeling the onion

That's nearly 70 per cent of a budget all but spent before you even get to your ideas around jobs, innovation, tax cuts or whatever buzzwords dominate that year's leadup to the budget. Governments inevitably focus the budget on that discretionary chunk of spending. But can we have a proper, informed debate on public spending when all those sunk costs are buried in the back of the book and left out of most conversations?

Yalnizyan says the conversation is too often focused on how much we're paying in taxes and not enough on what we're buying with those tax dollars.

"Once you start peeling back that onion and seeing what are we spending our money on, then you can start having a conversation," she says.

As if to drive the point home, the budget makes it abundantly clear where its revenues come from — the vast majority comes from you and your personal income taxes. 

Yalnizyan says this only serves to highlight the extent to which we don't measure benefits nearly as well as we measure (and explain) costs.

"We measure cost very effectively," she says. "Who pays, who loses, who wins. But we don't talk about how those expenditures benefit us."

So, as we parse next week's budget, keep all this in mind. Remember, the vast majority of every tax dollar isn't in the headlines. To paraphrase an old adage, you are what you spend. The federal budget tells us a lot about who we are as a country. Just don't get distracted.