Here’s something fun to consider after Tuesday’s fiscal update: If the Liberals had, you know, just stuck to their original campaign pledge, we basically wouldn’t have a deficit right now.
First, the substance of the update: revenues are up on a strong economy, and the deficit reduced in proportion. The numbers have improved so much, in fact, that over five years, we’ll avoid $46 billion in new debt. We’ll still be running deficits in the tens of billions of dollars, but thanks to the sizzling economy, we’ll be much better off than we would have been otherwise.
And that’s … fine, I guess, but only to a point. My friend Andrew Coyne wrote an excellent column in the National Post analyzing the numbers in more detail and, if I may, irritatingly made a lot of the points I’d hoped to here. He grants, as I do, that there’s plenty of good news: a deficit much lower than originally forecast, a declining debt-to-GDP ratio, and federal revenues that have, after a recent dip, sharply rebounded, falling back in line with expectations. Also: the economy is just objectively thriving, and you can’t knock that.
That’s the good news, but as Coyne notes, there’s also plenty of bad news: spending has absolutely exploded, only a sharp upward swing in revenue is saving the government from being up to its eyeballs in red ink, and Canada is still running deficits, Coyne says, almost a full decade after the last recession. The fiscal update gives us no sense of when the books may be balanced again.
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Coyne’s right. Every word of his column is bang-on. But reading his excellent column brought to mind an interesting point that warrants more attention.
Back in that long-ago era of 2015, Justin Trudeau, then leader of the third party in Parliament, said his party would buck Canada’s relatively new anti-deficit orthodoxy and deliberately run up the federal tab. The deficits would be modest, the Liberals pledged, roughly $10 billion a year for three years, with a return to balance by 2019. This was sold to the public as a necessary stimulus to get the economy going again, and also tackle some of the infrastructure backlog we’ve accumulated in recent decades.
The plan had merit, in theory, but in practice, it’s been a debacle. The Liberals have blown through their deficit targets. The fiscal update this week suggests we borrowed and spent just under $20 billion last year, so double the target, with another $18 billion or so forecast this year and $12 billion the year after (a total of $50 billion, for those keeping score at home). There is not even a gesture toward any goal of balance by 2019.
Meanwhile, of course, as the American economy has come back to life, ours has too. Clearly, the notion that the Liberals needed to borrow a lot of money to get things fired up was abjectly false. The kind of economic boom we’re seeing already is well beyond anything that could plausibly be laid at the feet of the first year of Liberal spending. There’s no way around it: the “stimulus” wasn’t needed. At all.
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So, yeah, that’s not great. We’re borrowing way more money than we planned, and will be borrowing much longer than planned, and the case for the borrowing — thin as it always was — has utterly evaporated.
It’s especially frustrating because, had the Liberals stuck to their original plan, our $10-billion deficit wouldn’t really be a deficit at all. Let’s set aside the fact that it wasn’t needed in the first place. Even an unneeded $10-billion deficit is much easier to swallow when the economy suddenly kicks into high gear, producing a government windfall of … roughly $10 billion! Specifically, the government’s revenues were $8.6 billion higher than normal, but that included a prudent reserve of $1.5 billion. Math has never been my strong suit, but I’m pretty sure adding those numbers results in … $10.1 billion.
Neato. The Liberals could have spent their $10 billion, primed a few pumps, cut a few cheques for favoured special interests … and still wound up $100 million in the black. Not a ton of money, and obviously a rounding error here or there could have thrown things off one way or the other. But the budget would already have been effectively balanced, more or less, if only the Liberals had stuck to the modest deficits they promised.
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Alas. “If only they’d done what they promised” isn’t exactly a new lament in Canadian politics. But it’s particularly frustrating given our current economic and political context. There is really no reason we need to be borrowing money right now, let alone by the tens of billions each year. Interest rates are low, the economy is strong, and Canada is not facing, right now, any imminent challenges or emergencies that require major spending. We’re not at war and standing up the military. We’re not spending billions on recovering from a disaster. We’re not shoring up a teetering economy due to a recession or global crisis.
It is, in other words, a perfect time to be paying off debt, not adding to it. Paying off debt is its own reward, in that it lowers the government’s interest payments, freeing up precious dollars to deploy as governments see fit. But it’s also a prudent move in an unstable world. We don’t know what the future may bring, which is why it’s important to take proper care of our balance sheets when times are good. We may need to treat it rather more roughly when times are bad.
Just look around us right now. NAFTA may soon be ripped to shreds by a reckless American president. Europe is facing a series of crises. The Russians and Chinese are asserting themselves into parts of the world that Canada has vital interests in, and we will need to watch that carefully. War could break out at any moment in Asia, and the Middle East is its usual omnishambles. All of these issues could harm us directly, but even if they don’t, we are not an island. As a trading nation, any shocks to the global system threaten our prosperity.
This is, viewed in that light, a particularly bad time to be running up the national credit card for no good reason whatsoever. And it’s that much more proof, sadly, that this government is simply not a sound steward of our economy, or of Canada’s overall national interest.
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