Liberals choose politics over fiscal common sense
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Prime Minister Justin Trudeau was never a fan of balanced budgets. From the moment he pledged during the 2015 federal election campaign to incur three years of deficits before balancing the books, it was clear the Liberal leader was not a proponent of governments living within their means.
Trudeau turned a $1.9-billion surplus, inherited from the outgoing Conservative government that year, into a $17.8-billion shortfall in 2016-17, despite promising to cap annual deficits at $10 billion. The deficit jumped to $19 billion the following year. Trudeau’s pledge to balance the books by 2019-20 was abandoned, as the Liberals fell $39 billion into the red.
Few would quarrel with the massive deficits the federal government incurred during the COVID-19 pandemic. Monstrous levels of spending were necessary to stabilize the economy and prevent economic ruin for businesses and individuals. Even the federal Conservatives demanded to know in early 2020 why the Liberals weren’t spending more to help Canadians (a position Conservative leader Pierre Poilievre has since tried to distance himself from).
With the pandemic winding down and the federal government flush with cash, Ottawa is well-positioned to eliminate the deficit — maybe not this year or next, but within three or four years.
Not surprisingly, Trudeau has chosen not to.
Instead, the Liberals announced a $40.1-billion deficit this year in Tuesday’s budget (little changed from last year) and a $35-billion shortfall next year. They propose to whittle the deficit down to $14 billion by 2028. But, like in previous years, the Liberals have no plan for the return to a balanced budget.
Trudeau wants Canadians to believe a balanced budget is possible down the road, but he keeps moving the goal posts. Under the current plan, the federal government would be in deficit for at least 12 consecutive years, from 2015-16 to 2027-28. That’s not what Trudeau promised in 2015.
During that time the federal debt will more than double to just over $1.3 trillion. The debt-to-GDP ratio (a number the credit rating agencies keep close tabs on) is projected to fall, but only slightly, from 43.5 per cent to a projected 39.9 per cent in four years. It was 30 per cent when the Liberals took office.
Proponents of perpetual deficit financing argue that as long as the debt-to-GDP ratio is steady or falling, the government can spend as much as it pleases. That is foolhardy. A growing federal debt and rising interest rates mean public debt charges will more than double from $24.5 billion in 2021-22 to $50.3 billion in 2027-28. That’s money that could be spent on social programs and transfers to provinces.
A growing federal debt and rising interest rates mean public debt charges will more than double from $24.5 billion in 2021-22 to $50.3 billion in 2027-28. That’s money that could be spent on social programs and transfers to provinces.
Without a plan to return to balance, the federal debt and the money it costs to service it will continue to grow. There is no guarantee the debt-to-GDP ratio will fall over the next four years, as the Trudeau government predicts. Should Canada fall into a recession and see negative economic growth this year or next, the government’s entire fiscal framework would fall apart.
The Liberals are counting on most Canadians not caring much about deficits anymore. Gone are the days when a finance minister could stand in the House of Commons and vow to balance the budget “come hell or high water” and get rewarded politically for it. With Canadians taking on growing amounts of debt in their own households, government deficits don’t get the attention they used to. Debt has been normalized.
Unfortunately, that has allowed some politicians to abandon all manner of fiscal responsibility, a shift that will cost future generations.
With Canadians taking on growing amounts of debt in their own households, government deficits don’t get the attention they used to. Debt has been normalized.
The politics of Tuesday’s budget is obvious: the Liberals hope to create wedge issues between their party and the Conservatives by forcing them to vote against an expanded social safety net that includes $10-a-day child care, a national dental program and more money to the provinces for health care.
The reality is those programs could be developed without plunging Canadians further into debt. It would require leadership and disciplined fiscal management, but it could be done.
However, when the prime minster believes there’s nothing wrong with perpetual deficit financing, that culture of reckless spending trickles down to all areas of government. The boss says it’s OK to run deficits forever. So that’s what the boss — and Canadians — get.
Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.