Winnipeg Free Press - ONLINE EDITION
No, nay, never a deficit.
By: Dan Lett
Posted: 10/9/2008 4:38 PM
| Comments:
http://www.winnipegfreepress2.com/blogs/lett/?p=176Finance Minister
Jim Flaherty, trying desperately to stop a late campaign swoon by the Conservatives, gives a
speech in Toronto in which he promises there will never be a deficit under his watch, no matter how gross things get with the world economic slump."Were sure not going to run a deficit," Flaherty said. "We will maintain a surplus in Canada and we will continue to pay down the debt."This is interesting strategy from the current and hopes-to-be-future finance minister. In the face of an impending recession that is expected to be so severe the 'D' word is being thrown around, Flaherty promises above all else to run a surplus and pay down the public debt. I'm wondering if he's calculated the cost of that kind of economic strategy.I think most reasonable economists would probably point out that what you spend the money on has a lot to do with how worthy a deficit is. In past eras, spending on government ran out of control for the sake of spending. Then, in the late 1980s and early 1990s, governments collectively brought spending under control. And (for the most part) surpluses have reigned supreme every since. That is a gross simplification of course, but you get the idea.Now, we're faced with the first real economic crisis since that belt-tightening exercise from the 1990s.In Ontario, as the Sausage Factory has noted
before, Flaherty was part of a Tory government that cut income taxes and never ran a surplus. In that case, the tax cuts were more important than a deficit. This time around, deficits are no longer in fashion, which means tax cuts are a thing of the past as well.There should be some concern about a finance minister who pledges to avoid deficits AT ALL COSTS while maintaining debt payments regardless of the economic conditions. The Liberals, in a previous era, decided that ending deficits were more important than spending on health, social services and education. The Libs made that choice, and now students of political history get to debate the relative merits of that approach.I ask this question for the purpose of generating a response, not to be rhetorical: We've just gone through a period of restoration of federal transfer payments that were cut in the 1990s; do Canadians want spending on key government programs to be cut again to keep the government balance sheet in surplus during the next few years?What I find increasingly interesting is how no one on the federal campaign trail will talk about the two-point cut to the GST and how it figures into what is happening now. It was opposed by many in 2005-06 when Harper first pitched it during the last federal election. Economists from the left and right warned of the imprudence of cutting a consumption tax. Certainly, it is hard to believe Flaherty and the Conservatives would have cut the GST if they saw the magnitude of the sub-prime meltdown coming. But then again, government budgeting is about contingencies and unforeseen threats. It may have been unreasonable for anyone to predict the trouble we're in now, but the simple fact of the matter is that Flaherty failed miserably to leave himself wiggle room against an economic crisis.Tax cutting advocates often push for tax cuts while at the same time threatening governments who even think about running deficits. I think we're seeing now that deficits and tax cuts are indelibly linked, and should be viewed as the ying and yang of government economic policy. The Tories have drastically cut sales taxes (at least from a revenue point of view) but did nothing to curb government spending in an equal amount. That did not bring about the economic crisis, but it's not helping us deal with it, either.-30-
Dan Lett, Winnipeg Free Press
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