Billion-dollar Covid spending forces changes to Treasury accounting

Pressures from the government’s multi-billion dollar Covid-19 wave of economic support have led to a change in the way the Treasury calculates some of its key indicators.

The Treasury is responsible for running the numbers on two keys
public expenditure indicators, the cyclically adjusted balance (CAC) and the structural balance.

During an economic crisis, these two indicators are designed to help economists step back and get a better view of the state of the government’s books by taking into account the position of the economy in the economic cycle and removing the one-off expenditures intended to support the economy, and only concerned with the sustainability of existing structural expenditures.

But the sheer scale of Covid spending put that under pressure, particularly the $62.1 billion (later increased to $69.1 billion) in initiatives related to the Covid Response and Recovery Fund (CRRF). Some of this support was one-off, but other expenses were rolled into existing day-to-day expenses, making it difficult to separate Covid money from regular expenses.

The problem has gotten so bad that the Treasury stopped calculating the cyclically-adjusted balance as it worked on a new methodology, which was only released last year.

The most politically significant changes concern the structural balance, which means that only the most important “one-off” expenditures will be included in the structural balance.

Treasury proposed three changes.

According to the proposal, to be included in the structural balance, expenditure must have a “significant” impact on the government’s operating balance (OBEGAL) of at least 0.5% of GDP in the years concerned.

For now, that would exclude anything below $1.7 billion. The expenditures must be “individually identifiable” in the government’s accounts, and they must clearly be one-time expenditures.

A Treasury document said the old methodology relied on “ad hoc judgments when identifying ad hoc items”.

“This leads to inconsistent judgments over time.”

The newspaper said it came to a head with the government’s Covid fund.

At the start of the pandemic, the initial Covid support plan and CRRF expenses had been excluded from the structural balance.

However, the type of expenditure from the Covid fund has been a game-changer.

Much of the Covid fund was spent on already existing government spending lines, meaning it was difficult to determine what was a one-time economic stimulus and what was a longer-term increase in a line of spending. expenses.

“…because much of the CRRF expenditure was allocated to existing appropriations, we are no longer able to identify it specifically in the Crown accounts,” the Treasury document states.

“Furthermore, the treatment of CRRF at HYEFU 2020 was inconsistent with certain historical events that also had a one-time impact, such as reassessments of accounting treatment,”

Spending from the Covid fund has caused headaches across government. The Auditor General, the watchdog of parliamentary spending, has reviewed the government’s Covid-19 spending and – for a number of reasons – found it “unable to determine easily or conclusively the amount of expenditure that the government has decided to approve for the Covid-19 response so far”.

This was mainly due to the fact that it was difficult to distinguish Covid-related expenses from ordinary expenses that had just increased or decreased in response to Covid.

The Auditor General has recommended that the government provide “a regular and easily accessible report summarizing the share of Covid-19 funding that has been allocated, the share of available funding that remains unallocated, the actual amount of expenditure to date for the main initiatives and, ultimately, what has been achieved”.

Another change from the Treasury is to look at the Single Parent Support (SPS) benefits that rise and fall with the economic cycle.

Already, the Treasury is forecasting and considering how much the government will spend on Jobseeker’s Allowance as the economy grows or contracts and unemployment rises and falls.

The Treasury now recognizes that the number of people claiming single parent support – designed to help struggling single parents with their job search – rises and falls with the economic cycle.

The Treasury paper on the changes said that “SPS figures have historically shown cyclical behavior because single parents have a certain attachment to the labor market:

“Removing these cyclical effects from the CAB and the structural balance provides a more accurate picture of the government’s underlying fiscal performance.”