The Trudeau government has been in office six weeks, and nearly every plank of their fiscal platform has splintered into pieces. The only real surprise is just how quickly it happened. Finance Minister Bill Morneau is bringing in an advisory council of experts who know how to grow successful economies, as he announced on Monday. Given the Liberals’ early fiscal track record, it is probably wise at this point to seek guidance from those who didn’t put the Liberal platform together.
To recap, the Liberal tax scheme was to hike taxes on those earning more than $200,000 annually, in order to pay for a “revenue-neutral” tax cut in other brackets. The reality is that these measures are not revenue neutral, and will actually blow at least a $1.2 billion hole in the budget. Their plan was also for annual deficits of no more than $10 billion, to cover billions in spending that is supposed to help grow the economy. But combine this spending spree with the Liberals’ bad math on their tax plan, and their $10 billion deficit cap is now nothing but a memory. In fact, Liberal ministers have been instructed to not even mention their $10 billion deficit pledge any more. Yet both the Parliamentary Budget Officer and Morneau’s old shop, the C.D. Howe Institute, have indicated that deficits will be higher than originally predicted.
The only real surprise is just how quickly it happened.
With their promise to cap the deficit safely in the rearview mirror, the question becomes how long the Liberals will be running them. Will their promise to balance the budget in time for the next election be the next one to fall by the wayside? All indications are that it will, given the new Liberal “fiscal anchor” of shrinking the net-debt-to-GDP ratio, rather than actually balancing the budget. Conveniently, this would allow them to spend as much as $25 billion a year more than they take in. That’s a pretty convenient “anchor.” It sounds like someone already dropped it through the hull of the ship.
In explaining his shift in position, Prime Minister Trudeau stated he “hopes for modest deficits.” We think Canadians deserve more than just a hope and a wish. They deserve a plan, because Canadians know you can’t wish away a deficit, and budgets don’t, in fact, balance themselves.
This deficit spree would be more palatable if there was any indication of what it might do to create jobs and growth. But so far, the Liberal fiscal approach has been simply to set the stage for blowing through their targets, with no explanation of how this spending will help to grow the economy. If these deficit plans simply saddle Canadians with billions of dollars of new program spending, the economic effect is likely to be negligible — but the structural deficit left behind certainly won’t be.
Canadians deserve a government that will take the country’s finances seriously. Instead, just six weeks into their new mandate, the Liberals have given themselves licence for long-term fiscal recklessness, telling Canadians that piling up more debt is okay as long as debt-to-GDP doesn’t get out of whack. That’s cold comfort for Canadians who will one day be asked to repay the cost of this structural deficit through higher taxes.
We’ve seen the results of this kind of Liberal fiscal carelessness before. As a girl growing up in Cape Breton, I well remember the economic chaos caused by the MacEachen budgets of the early 1980s brought down when Pierre Trudeau was prime minister. Morneau only has only one chance to get his first budget right. He should put a cap on the deficit, say no to massive new program spending, and keep Canada a fiscally prudent path.