Political Leverage of Innumeracy

With all the talk about a federal election this fall, I will instead focus on provincial Ontario politics for this look at how numbers and public inattention are used by politicians for their own ends. I'll use a trivial example to start.

Recently the Ontario government announced $1.1B allocation of funds to municipalities for various infrastructure needs. Ottawa's share is $77.2M. Never mind for the moment that this is our own money (transferring our provincially-paid income and other taxes to another level of government). The first question is, is there anything remarkable about this amount of money? No, not really. Being fair-minded, meaning they want to avoid showing favouritism if at all possible, they would tend to allocate the funds in proportion to municipal population. If you take the percentage of Ottawa's share of the $1.1B (7%), then take that same percentage and apply it to Ontario's current population (about 13M people) you get about 900,000. This is pretty close to Ottawa's metro-area population (excluding Gatineau, of course).

There is also the matter of whether that 7% is proportional to the taxes we pay into provincial coffers. I will leave matters of wealth redistribution unaddressed in this article since, provincially, it doesn't appear to be as big a factor as it is with federal to provincial transfer payment.

Now that I've dealt with this simple case as an introduction I will move on to a slightly more obscure matter - how politicians announce program funding increases. You know the type I mean, where, with some regularity, you hear an announcement such as X% increase in funding to, say, health care. At first blush these announcements sound welcome, yet what are we really getting? To look at this properly we need to first consider two secular economic effects:

• Population Growth: For the past decade the population growth in Ontario has stabilized at around 1.3% annually. Despite some rhetoric about how immigration (a significant fraction of our population growth) steals jobs and so forth, the GDP does roughly scale with population. This is as expected since every new person (immigrant or born here) is, in equal proportion to the population, working, paying taxes and buying goods and services. Therefore every Y% growth in population roughly increases government revenue by Y%.
• Inflation: This effect is better known, but let's recap it briefly. When inflation (a measure of the increase in price of a basket of goods and services) occurs there is again, roughly, a proportional increase in GDP, taxes and, yes, government revenue (here's one document to wade through if you have an hour to waste). Recently, GDP is tracking 0.5%-1% less than inflation + pop. growth, but over the long term is generally true, which you can see from the charts near the bottom of the referenced page. Government programs are part of the same economy, so the cost of those programs also roughly tracks inflation. As an aside, ideally we'd like to see GDP growth higher than pop. growth + inflation, as evidence of higher productivity, but this is sadly not the case in Ontario.
  

What this means is that if a government program that is currently funded to the tune of, say, $10B, and a government minister announces a $300M increase of funding this year, that program is quite likely being cut back. With inflation running at ~2.8% right now (due in large part to energy) and population is up 1.3%, the program would have to be increased $400M to maintain existing service levels (assuming other factors, like productivity, are unchanged).

In this calculation I am assuming the government program is offered to everyone and costs are aligned with inflation. This is rarely true for any one program, for no other reason than statistical variance in inflationary costs, but would be about right across all programs.

In conclusion, be wary of politicians bearing gifts! Look just a little bit closer at the funding increases they keep announcing, especially with a federal election growing nigh. Notice how they tend to announce absolute dollar amounts rather than percentages, or if they do mention percentages how they omit the context. In 2008, a 3% to 4% annual increase is not an increase - it's a static funding level. A 2% increase is a funding cut. Regardless of your personal values and beliefs about government policies and programs, you need to arm yourself against the machinations of politicians.