One year on, Justin Trudeau’s pledge to run “modest deficits” does not look any better for Canada. Munk Senior Fellow Sean Speer says that instead of succumbing to the demands of special interest groups Ottawa should adopt a tough plan for getting back into the black.
By Sean Speer, Aug. 29, 2016
Next year’s federal budget is months away but budget consultations will soon start in earnest.
The deadline for pre-budget submissions to the parliamentary finance committee is the end of this month.
Stakeholders, consultants, and special interest organizations are scrambling to make the case for why their industry, region, or client deserves federal dollars.
Expectations are high. And for good reason.
With the government seemingly over “this whole balanced budget thing” as the finance minister recently put it, these groups are reasonably expecting their own piece of the deficit-financed largesse.
But taxpayers should be concerned. Special interest budgeting is a recipe for more rent seeking, ongoing deficits, and rising debt.
It was roughly one year ago that then-Liberal leader Justin Trudeau promised “a modest short-term deficit” of $10 billion per year to “kick-start” economic growth. Voters were assured these temporary deficits were to be rooted in fiscal anchors that would protect against ongoing red ink.
And then things changed. Modest deficits soon became nearly $30 billion per year. Short term changed to the entire fiscal planning period.
And its predecessor’s balanced budget legislation was repealed.
Soon the fiscal anchors were washed away and all that was left was the government’s commitment to increase spending.
Program spending is now poised to grow by 15% between 2014-15 and 2016-17 and that doesn’t even account for any new spending to inevitably come in the 2017 budget.
Cue the special interests. It’s no surprise that lobbying activity is up in Ottawa.
More government rents invariably attract more rent seekers.
Economist Milton Friedman famously said that “nothing is as permanent as a temporary government program.”
What he meant was that new spending creates powerful constituencies with strong interests in maintaining and growing government programs that benefit them and their members.
It thus becomes politically challenging for governments to hold the line. Temporary becomes permanent.
And the consequence is more spending and more deficits.
Timelines for balancing the budget are continuously pushed off and taxpayers are saddled with rising government debt and eventually higher taxes to pay for it all.
It’s a story that Canadians know all too well from the spendthrift experiences of the 1970s and 1980s.
The solution is to ensure taxpayers are represented in the budget process rather than “selected groups and individuals” as the finance committee’s call for pre-budget submissions stipulates.
Taxpayers must be protected from the profligate mix of rising government spending and special interest appetites.
One solution is to restore balanced budget legislation that puts statutory limitations on government spending.
Of course such legislation isn’t a silver bullet.
Political will ultimately matters.
But a clear and simple balanced budget law can buttress political will by managing expectations not only for external demands on government spending but also among the departments and agencies clamouring for their share of the pie.
It would make abundantly clear the baseline assumption is government won’t spend beyond its means simply because it can.
As pre-budget consultations commence in Ottawa, Canadians will be watching to see if anyone is protecting their interests in the face of voracious special interest demands for more government spending.
The safest plan is for fiscal rules that preclude deficits for the sake of deficits. That’s the only way for taxpayers to have confidence that their interests come first.
— Speer is a Munk senior fellow at the Macdonald-Laurier Institute