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Trudeau should know that endless deficits aren't the answer
Tuesday, 22 March 2016 - 10:00am
While the federal government continues to muse about a large deficit in today’s budget, one of the best arguments against running a deficit actually comes from a federal government report.
To begin with, note that Finance Minister Bill Morneau has suggested that balancing the federal budget this year would “push the Canadian economy into a recession.” Similarly, the Liberal party’s platform during the election also spoke of the “need” to run deficits in order to stimulate the economy.
But what exactly is the problem a deficit will fix? According to the federal government’s last fiscal update, Canada’s economy is expected to grow by 1.4 per cent this year. That kind of growth is certainly not robust, but it’s not a contraction either.
The government’s argument that it can’t cut spending, as it would trigger a recession, fizzles when you consider Canada’s economy is approximately $2 trillion. Thus, even if the government had to tackle a deficit of $30 billion (a rumoured figure), that only works out to 1.5 per cent of GDP; such a reduction would be similar to taking a cup of water from your bubble bath.
A pertinent question that hasn’t been answered by the federal government is, at what rate of growth would the government commit to balancing the budget? Would 1.6 per cent be enough? What about 1.8 per cent? Who knows? The Trudeau government hasn’t clearly defined its goal or the problem it’s trying to treat.
What we do know is the plan to run a deficit of $30 billion isn’t sustainable. Here’s where the federal government report, mentioned earlier, comes into play.
If you review the 2015 Fiscal Sustainability Report, authored by the federal government’s Office of the Parliament Budget Officer, you’ll see Canada’s economy is expected to grow, on average, 1.6 per cent between 2021 and 2089.
We’re headed toward a prolonged period where low growth will become the new normal. Even if you believe stimulus spending works, it should be clear that the federal government can’t run deficits from 2021 to 2089; that’s just not sustainable.
The budget officer is predicting things will slow down significantly due to the simple fact that our population is getting older each year. Simply put, a smaller portion of people working means lower output.
Instead of planning on deficit spending to drive economic growth, Prime Minister Justin Trudeau should look at alternative solutions.
For instance, the Canadian Association of Petroleum Producers recently noted that Canada imports $26 billion worth of foreign oil each year. Imagine if those dollars stayed in Canada and supported the purchase of more oil from Alberta, Saskatchewan and other Canadian provinces? Such a move would support Canadian jobs and Canadian businesses; and both would pay taxes in Canada.
Perhaps rejigging the equalization formula — as Saskatchewan Premier Brad Wall suggested — could help convince eastern provinces to allow pipelines through their regions and increase the sale of Canadian oil.
Trudeau could also look at rejigging federal support for post-secondary education so that it’s more focused around skills that are actually needed in the workforce. Too many young people seem to be spending money and time working on degrees and skills that aren’t in high demand in the workforce.
Tweaking the employment insurance program to end high seasonal dependence in some parts of the country could be another option to increase productivity. Alternatively, if EI were treated as a personal account, one that people would pay into and could draw from at the end of their career, that too could encourage greater productivity.
The list of policy ideas that don’t require increased spending, but rather focus on smarter spending, goes on and on. These are the types of initiatives the Trudeau government should be pursuing as they’re both sustainable and realistic.
One thing should be clear: deficit spending is not a sustainable solution for the federal government over the long-term, just as its own report suggests.
Colin Craig works for the Manning Centre in Calgary and is the author of The Government Wears Prada
This column was published by the Calgary Herald on March 22, 2016