Thursday, March 30, 2023
No Result
View All Result
  • Media
Support Us
Macdonald-Laurier Institute
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
No Result
View All Result
Macdonald-Laurier Institute

Budget 2016 shows Ottawa hasn’t yet learned to say ‘no’: Philip Cross in the Financial Post

March 23, 2016
in Columns, In the Media, Latest News
Reading Time: 4 mins read
A A

Philip CrossBudget 2016 is proof that Canada’s new federal government doesn’t yet know how to reject unaffordable spending programs, writes Philip Cross.

By Philip Cross, March 23, 2016

The most troubling issue raised by the federal budget is not the average $40 billion of actual borrowing projected over the next two years, but how fast Bill Morneau will grow into his job as the Minister who says No.

Canada has been well served by a string of great finance ministers — liberal and conservative— stretching from Paul Martin to John Manley to the late Jim Flaherty. A good finance minister covers many blemishes in any government. They all understood that an important part of the job is saying no — no to unaffordable spending programs, no to deficit-financing as the reflexive choice of governing.

Frankly, it seems that Morneau has skipped the procedure to turn his heart into stone.

John Manley apocryphally tells the story of how, when named minister of finance, you are escorted to the basement of the Finance building and laid out on an operating table where faceless mandarins cut open your chest, rip out your heart and insert a piece of Canadian Shield in its place. This is because you need a heart of stone for all the times you will say no—whether to self-serving unions, businesses and provincial governments or to well-meaning cabinet colleagues who have no concept of a budget constraint.

Frankly, it seems that Morneau has skipped the procedure to turn his heart into stone. The only ones who have publicly said no to this government have been the provinces. First they said no to CPP expansion in January, and then no to a national carbon tax in March. That Scott Brison at Treasury Board claims Morneau occasionally said no while preparing the budget is hardly reassuring, since it implies the Liberal cabinet on its own wanted drunken-sailor deficits of $50 billion or more, a level last seen at the worst of the global economic crisis in 2009.

The economy on its own is gradually responding to stimulative factors such as strong U.S. auto sales and lower gasoline prices. News that manufacturing sales hit a record high and retail sales rose strongly in January demonstrate the economy was not the basket case portrayed by Liberals during the election. Still, this government is wedded to its own election sloganeering that the economy is in dire straits even outside the oil-producing regions. The budget takes a bi-polar view of global risks; the Canadian economy is full of risks to the downside that require deficit spending, but assumes no risk lurking in the global financial system that would require the sort of extreme fiscal response the Harper government adopted in 2009.

As a result, Morneau has opened the deficit floodgates, unperturbed by the prospect of the deficit’s lunar trajectory despite a growing economy and no prospect of balancing the books by the end of the government’s mandate.

While growth in Canada will benefit little from sharply higher deficits, the added debt will burden future governments and taxpayers.

What sort of benefit can the Canadian economy expect from these deficits? Very little, according to plenty of studies on the fiscal multiplier published by the NBER. The research demonstrates no net stimulus from fiscal policy in an economy with a floating exchange rate, like Canada’s, because it is offset by tighter monetary policy. The loonie’s recent rally above US77 cents is a good example. The surge was not all due to higher oil prices; it also reflected investors anticipating that the Bank of Canada’s infatuation with lower (or even negative) interest rates is over. The loonie’s upturn began almost to the day in January the Bank of Canada announced it would not cut interest rates.

While growth in Canada will benefit little from sharply higher deficits, the added debt will burden future governments and taxpayers. We have reduced the distortions of extreme monetary policy (such as a falling exchange rate and changed incentives for saving and borrowing) by increasing the distortions from extreme fiscal policy. Such is progress in today’s world of macroeconomics.

The appointment of a novice MP like Morneau–the first rookie at Finance since 1919–was a curious move. Usually, becoming minister of finance is the culmination of years of seasoning and learning how government works. It now looks like Morneau was picked precisely because he would have difficulty saying no to his high-spending cabinet colleagues.

Canada’s unfortunate experience with hitting the “debt wall” in the mid-1990s showed that deficits don’t fix themselves.

An artful government could have boosted the economy without spending its own money. Private sector firms are waiting for the green light to build pipelines to both coasts, boosting infrastructure spending and permanently lowering the price discount for our oil exports which are trapped in the over-supplied U.S. market. Over the last decade, Canada has invested nearly $1 trillion in developing its energy assets. We need continued investments to maximize the return on these investments, not strand them with utopian plans for greening the economy.

Canada’s unfortunate experience with hitting the “debt wall” in the mid-1990s showed that deficits don’t fix themselves. Government in Canada subsequently developed an aversion to debt that served us well during the debt-fuelled financial crisis enveloping the U.S. and much of Europe in 2008. However, despite these vivid reminders of the dangers of debt, we are now plunging head first into the treacherous waters of large deficits in a growing economy.

Philip Cross is a Senior Fellow at the Macdonald-Laurier Institute.

Tags: Budget 2016Financial PostPhilip Cross
Previous Post

Proportional representation empowers the ugly underbelly of democracy: Christian Leuprecht in the Globe and Mail

Next Post

UK’s debt fight a stark contrast to Canada’s free-spending ways : Sean Speer for CapX

Related Posts

Budget 2023: Inadvisable deficit spending increases during inflationary times – Jon Hartley for Inside Policy
Inside Policy

Budget 2023: Inadvisable deficit spending increases during inflationary times – Jon Hartley for Inside Policy

March 30, 2023
Getting our houses in order: How a lack of intergovernmental policy coordination undermines housing affordability in Canada
Commentary

Getting our houses in order: How a lack of intergovernmental policy coordination undermines housing affordability in Canada

March 30, 2023
Hitting the ceiling: Can Canada continue to support Ukraine militarily? Alexander Lanoszka for Inside Policy
Inside Policy

Hitting the ceiling: Can Canada continue to support Ukraine militarily? Alexander Lanoszka for Inside Policy

March 30, 2023
Next Post
Sean Speer, US deficit, deficit reduction

UK’s debt fight a stark contrast to Canada’s free-spending ways : Sean Speer for CapX

Macdonald-Laurier Institute

323 Chapel Street, Suite #300
Ottawa, Ontario
K1N 7Z2 Canada

613.482.8327

info@macdonaldlaurier.ca
MLI directory

Follow us on

Newsletter Signup

Support Us

Support the Macdonald-Laurier Institute to help ensure that Canada is one of the best governed countries in the world. Click below to learn more or become a sponsor.

Support Us

Inside Policy Magazine

  • Current Issue
  • Back Issues
  • Advertising
  • Inside Policy Blog
  • Privacy Policy

© 2021 Macdonald-Laurier Institute. All Rights reserved.

No Result
View All Result
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media

© 2021 Macdonald-Laurier Institute. All Rights reserved.