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Public Sector Financial Overview

Alex Cater, Principal and Alan Mok, Director

Public sector finance is facing several challenges given the reduced revenue from business taxes due to depressed demand and increasing expenditures from a surge in public health needs, worker compensation due to economic impacts, and government aid to the general local constituents in the form of housing support, food assistance, and unemployment benefits. As a result, the timeline has been prolonged and many questions exist concerning the viability and sustainability of discretionary programs. As these situations persist, the process for allocating funding to various programs will become more challenging. Most people do not know that the government budgeting process actually starts 3 - 5 years before a program is actually funded. In many cases, government programs don't earn a profit because they are meant to be public services. Not doing so means that programs are funded from tax dollars which are allocated among different departments or ministries who then must determine the level of funding to each of the programs under its purview. The below table provides insight into the actual process that takes place for the government budgeting and finance process.

Steps 1 - 3 occur in advance of any department being administered funds for a given year. The execution phase is the process of overseeing money allocated to programs in a given year with the program management and acquisitions responsible for actually processing and spending the money which is allocated to the budget.

The challenges that exist in public finance started as an execution issue but now have morphed into a long-term challenge that will affect budgeting for next year's programs and beyond. As tax dollars remain compressed, governments will be forced to reprogram money from social services to essential functions until international commerce resumes. However, considering that the effects of the pandemic are likely to linger through 2022 by some estimations, the impacts of an impending recession also will inhibit and likely indefinitely suspend certain programs for the next 5 - 10 years.

The budgeting process is operational as well as political. Political influence and priorities will impact how much money is allocated to each program. Therefore political changes or influences asserted by vast portions of the constituency can have an effect on how governments allocate their funds, particularly given that citizens are likely to pay more for the same services because corporate tax increases alone are unlikely to close the deficits many governments will face. That means that individual citizens will share some of that responsibility with increases in personal taxes.

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