Government failure not unique to Trudeau government

The Auditor General of Canada (AG) recently released reports of the federal government’s management of both vaccines and COVID-related spending. While the reports certainly raise questions (again) about competence, they should not mislead Canadians into believing that government failure is unique to the Trudeau government. Instead, we should better understand the limits of government and adjust our demands accordingly.

The AG’s assessment of COVID-spending is damning. She found $4.6 billion in overpayments to ineligible recipients and recommended that the government investigate the nature of another $27.4 billion in spending. Overpayment recipients included 1,522 prisoners, 391 dead people and 434 children too young to be eligible. The AG also criticized Ottawa for failing to require social insurance numbers (SIN) for workers in firms claiming federal wage subsidies (Canada Emergency Wage Subsidy), which means proper verification and tracking cannot be completed.

This is on top of poorly targeted federal COVID spending. Our 2020 study, for instance, examined almost $82 billion of COVID spending and estimated that 27 per cent was poorly targeted, representing more than $22 billion in wasted taxpayer money. For example, $11.8 billion in Canada Emergency Response Benefit (CERB) payments went to eligible young people ages 15 to 24 deemed to be dependents living with parents in households with at least $100,000 in household income.

This level of poorly-targeted spending, coupled with the mismanagement noted by the AG, means that Ottawa spent much more than was needed and accumulated far more debt than was necessary to stabilize the economy and help those in genuine need.

There is, therefore, a legitimate question about the government’s competence. However, there’s also a risk that Canadians assume these failures are simply a result of the current government’s incompetence rather than the larger problem of systemic government failure.

Consider a 2013 study, which analyzed more than 600 instances of government failure from AG reports between 1988 and 2013, covering multiple Canadian federal governments. One example—the 2001 Heating Expense Relief program, which aimed to provide financial assistance to low-income Canadians to offset higher energy costs using the existing GST credit system. The AG found that less than one-quarter of the $1.5 billion spent went to low-income families facing emergency heating costs, and that up to one million of the 7.6 million households that received payments may have received multiple payments. Moreover, at least 4,000 Canadians living abroad, up to 1,600 prisoners and at least 7,500 dead people also received payments.

Or consider a follow-up 1998 report examining the integrity of Canada’s social insurance number system, which is the basis for government payments to individuals. The report found that more than 50 per cent of SINs had no supporting documentation, the registry had 12 million uncertified SIN accounts, and that there were 3.8 million more SINs for Canadians 20 years of age and older than there were people. The potential for fraud is obviously significant.

The reality of government is that it has many unique constraints and features, which mean it operates differently from markets and, perhaps most importantly, differently than what many Canadians envision. In other words, the very nature of government—which includes the need to be popular and win elections, competition between interest groups and their primacy in the political marketplace, the monopoly environment within which most governments operate, the lack of prices and profits as a source of information about how to best allocate limited resources, the separation of revenues (taxes) from the delivery of services, and the lack of financial constraints—all mean governments operate uniquely in the economy.

The sooner Canadians better understand the limitations of government, the sooner we can minimize waste and the effects of government failure by more realistically limiting our demands on government.