Conservative Leader Erin O’Toole stood proudly at a podium on Wednesday and made a promise to Canadians: if elected, he’ll balance the budget within 10 years — and he says he’ll do it without making cuts.
“We’re going to create jobs and opportunity, build infrastructure that Mr. Trudeau announces but never gets built, and have a detailed plan — and a disciplined plan — to get spending under control to balance the budget over the course of 10 years,” he said.
“We will grow the economy so that we can get back to balance in a responsible and equitable way without cuts.”
But with the national debt over the $1-trillion mark and the economy bruised from the relentless ravages of the COVID-19 pandemic, some experts eyed O’Toole’s promise with skepticism.
Here’s what the experts have to say about this claim.
A budget is balanced when the revenues a government rakes in balance out all their spending, meaning nothing gets added to the federal debt.
Canada’s federal debt levels are currently a little over $1.1 trillion, according to Trevor Tombe, an associate professor of economics at the University of Calgary and a research fellow at The School of Public Policy.
The deficit for the last fiscal year, meanwhile, was $314 billion — a massive jump from the $21.77 billion deficit from the fiscal year before that, mostly due to the piles of cash Ottawa had to spend on fighting the COVID-19 pandemic.
The Liberal platform lays out $78 billion in new spending over five years with no plan to balance the budget. Erin O’Toole, meanwhile, is promising to balance those books without making any cuts, which raises the question: how would he make up the difference?
To further complicate things, O’Toole has said he’d roll out more stimulus spending. But, he says, he’ll end much of it after the first year and wind it down completely over five years. He also said he’d wind down existing COVID-19 benefits, which are currently responsible for a significant portion of this fiscal year’s deficit.
Conservative officials have said the robust economic recovery on which the Tory plan rests assumes annual GDP growth of roughly three per cent, a target reached only once since 2011. The GDP is how much money we can make from everything within our borders in any given year. That means the GDP growth rate is the average annual rate at which that figure changes.
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“If normal rates of economic growth continue, then revenues will be gradually rising over time. And then, for the Conservatives to bring spending … in line with that revenue, they need only to restrain the growth rate of spending to roughly population plus inflation,” said Tombe.
“So that does mean that the per-person level of federal government programs adjusted for inflation would remain constant. But that’s not cutting spending, so that’s just restraining its growth rate.”
Tombe said this is actually a “gradual” slowdown in the rate of spending growth — about two to four per cent per year.
“So, yeah, it’s entirely credible to balance over the span of 10 years,” he said.
Still, some economists were unconvinced that the Conservatives’ targeted annual GDP growth rate is actually realistic. Their plan to balance the budget without making cuts hinges on this growth — and it’s not likely to happen, according to Mostafa Askari, chief economist at the Institute of Fiscal Studies and Democracy.
“In order to get three per cent growth, what you need is a significant increase in labour productivity growth in Canada,” Askari said.
“Right now, most estimates show that our productivity growth is about one per cent — 1.0 to 1.2 per cent. Now, in order for us to get three per cent growth, that productivity growth should be essentially double.”
That, he said, is unlikely to happen.
“That kind of estimate is not credible,” Askari said, citing the fact that Canada hasn’t seen any significant labour productivity growth in “a while.”
Our aging workforce also doesn’t paint a promising picture for future labour input growth, which is another part of the general GDP growth equation, according to Askari.
“You add those things up, it’s very hard to get to three per cent (GDP growth),” Askari said.
“If the balancing (of) the budget is only relying on that, then it is not a credible plan.”
However, Tombe says his own projections show that the books can be balanced with a nominal GDP growth rate of 3.8 per cent per year. The real economy, adjusted for inflation, would only need to grow at a rate of 1.8 per cent, he said.
“This is completely in line with all other reasonable forecasts that tend to land around that 3.7, 3.8 nominal growth rate. So that’s very modest,” Tombe said.
Still, another key consideration is the one hanging over all our heads as we navigate our fiscal futures: the unknown.
While Livio Di Matteo, an economics professor at Lakehead University, said he thinks the budget could be balanced in 10 years, we’d have to have a smooth fiscal decade with no major, expensive emergencies — like a recession or a pandemic — in order for that to happen.
“Sometimes I think God created economists to make weather forecasters look good,” joked Di Matteo.
“And so, you know, you really have to be careful about what you project.”
Still, he said, history has shown that recessions aren’t uncommon.
“Every five to 10 years, something seems to happen. And it’s just a question of how big it is, what the degree of the shock is,” Di Matteo said. “So going 10 years forward and assuming it’ll be completely smooth sailing, you know, you certainly are taking your chances.”
Di Matteo said if he were a betting man, he’d keep it far away from politics in general — whether it be Erin O’Toole’s promises or another politician’s claims.
“I never bet on the politicians. It’s a safer bet to bet on horses,” Di Matteo said.
Neither the Liberal nor the NDP platforms mention fiscal balance, with both parties saying investment in economic and social programs can rev the economy and generate revenue more effectively than slashed budgets. The Bloc Quebecois and Green Party haven’t made any promises to balance the books, either.
Statistics Canada recently released numbers showing the country’s economy had its worst quarterly stretch since the start of the pandemic, contracting by 1.1 per cent between April and June and possibly dropping further in July.
— With files from The Canadian Press
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