Sean Speer that lays out the depth of Ottawa’s deficit issues in the Sun chain of newspapers.
By Sean Speer, Feb. 7, 2017
Speculation is that Finance Minister Bill Morneau is putting the finishing touches on this year’s budget numbers. The 2017 budget will be an important test for the minister and his government.
It’s safe to say that Ottawa’s fiscal credibility is on the line after a series of flip-flops and reversals on the size and duration of its budgetary deficit.
How can we judge whether the government is on the right track? Five numbers help to explain how it’s doing thus far and may determine where we’re headed in the future.
The first is $120 billion. This is how much the federal government’s fiscal position has deteriorated since the Harper government’s last budget and the minister’s economic and fiscal update in November.
It’s safe to say that Ottawa’s fiscal credibility is on the line after a series of flip-flops and reversals on the size and duration of its budgetary deficit.
The final Harper budget anticipated cumulative surpluses of $21 billion between 2015 and 2020. The Trudeau government now anticipates accumulated deficits of $99 billion over the same period.
Hence the $120 billion. And it’s counting since the government is non-committal on if or when it will eliminate the deficit.
The second is $42 billion. It refers to the share of Ottawa’s budget woes resulting from weaker-than-projected revenues. Roughly one third of the problem is thus largely outside of the Trudeau’s government control. Any government would have had to confront this challenge.
The third is 2%. The Trudeau government has increased spending by $78 billion over this five-year period. Of this, only about 2% is dedicated to “trade and transportation infrastructure” – the type of productivity-enhancing investment that we were promised.
The rest is a grab-bag of dubious spending including “green infrastructure” and tax credits for teachers and talk shows. We can debate its merit. But it’s wrong to call it investment.
That’s how we’ve gotten here thus far. It’s not primarily lower revenues or useful “investment.” It’s mostly just questionable spending.
The question then is: where are we headed?
The fourth number is 2.4%. While spending is growing by an average of 6.5% between 2015 and 2018, the government then projects average spending increases of 2.4% over the subsequent four years.
It would effectively mean a more than 50% cut in year-over-year spending growth relative to the present. How the government suddenly intends to exercise such fiscal restraint is largely unexplained.
And there’s good reason to be sceptical due to a raft of outstanding commitments and little evidence that the government is ready to make tough choices. It’s a safe bet therefore that 2.4% proves to be higher and Ottawa’s budgetary deficit is larger and longer.
We’re far from a crisis but we’re on a risky path.
Which brings us to the fifth and last number – 2050. Recent projections from the Department of Finance now anticipate protracted annual deficits until after 2050 and the federal debt burden to climb to $1.55 trillion as a result.
These long-term projections no doubt have their limitations but it does give us a sense of the heightened risk to federal finances. It doesn’t take much to get on the wrong path and it can be terribly difficult to get off it.
Budget 2017 therefore finds the government at a critical juncture. We’re far from a crisis but we’re on a risky path. It’s up to the minister to chart a better course and it starts with a new set of numbers.
Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute
