By Jack Mintz, November 7, 2022
When Paul Martin became finance minister in 1993, he inherited a record of broken promises to stop Canada’s debt from rising as a share of GDP. He understood a top priority was to establish fiscal credibility if his department were to convince Canadians only tough policy actions could restore financial health. Today’s Trudeau Liberals need to establish their own fiscal credibility.
Martin carried out his objective in two ways. The first was to establish a clear fiscal target that everyone could understand: a balanced budget. The second was to choose realistic targets — you can’t establish fiscal credibility by missing your targets. Martin repeatedly hit his and that gave confidence to international lenders that Canada would pay off its debts.
Canada still has their confidence but the Department of Finance’s fiscal credibility has been eroding. The Trudeau government’s initial fiscal anchor was to keep deficits below $10 billion a year. It broke that promise in just one year, with a 2015/16 deficit that came in at $18 billion. Promise made, promise broken. Instead of trying to do better, the government dropped the deficit target in favour of the less challenging promise not to let its debt rise faster than GDP.