The Liberals are too comfortable with deficit spending

0



The goal of responsible budgeting in government is to balance the wants and needs of society with the means to pay for them.

This is never an easy task, especially during economic downturns or when crises arise, such as the COVID-19 pandemic. There are times when it is prudent for the government to borrow in order to maintain essential services or to prevent the economy from collapsing. It is also desirable for governments to live within their means during periods of economic growth, including paying down debt to prepare for the next downturn in the business cycle.

The federal budget unveiled Thursday by Finance Minister Chrystia Freeland does not match spending to revenue. The government plans to spend $52.8 billion more than it collects in taxes, fees and other revenues. That’s a far cry from the $327.7 billion deficit recorded in 2020-21 at the height of the pandemic, when the government rightly provided businesses, individuals and other orders of government with limited fiscal support in time during a crisis.


PC

Deputy Prime Minister and Finance Minister Chrystia Freeland receives a standing ovation as she delivers the federal budget in the House of Commons on April 7. (Adrian Wyld/The Canadian Press)

But as those supports dwindle, the government should find ways to restore balance, especially with the economy performing better than expected and unemployment continuing to fall (it fell to 5.3% in March, its lowest level since 1976).

Instead of living within its means, the Liberal government has charted a course of deficit financing for the next five years. Deficits are projected to decline in each of these years, falling to $8.4 billion by 2026-27. However, given the Liberal government’s track record of failing to meet its deficit targets since taking office in 2015, including in the pre-pandemic years, there is no guarantee that these projections will be met.

Prime Minister Justin Trudeau’s government hasn’t balanced its books for seven years and is now forecasting at least another five years of deficits. That should be of concern to Canadians.

Budget 2022 includes new laudable spending initiatives, including a national dental program that, when fully rolled out, will provide low-income seniors and Canadians under 18 with much-needed dental coverage. There’s more money for the provinces, including for health care, higher spending to fight climate change, and a long-overdue injection of cash into the country’s defense budget.

“Canadians deserve a more responsible approach to federal budgeting than what they have witnessed this week.”

However, much of this new spending is being offset by large increases in income (much of it fueled by higher inflation) and a sharp drop in EI benefits over the next few years.

Barring unforeseen circumstances, there is no reason – given current economic projections – for the government to plan five-year deficit budgets. Chronic deficits weaken the government’s balance sheet and compromise its ability to prepare for future economic downturns. Heavy spending this year – about 25% higher than pre-pandemic levels – is also expected to put upward pressure on inflation.

Even under the Department of Finance’s most optimistic projections, the federal government is not expected to return its debt-to-GDP ratio to pre-pandemic levels until 2040, a long-term projection fraught with uncertainty. These projections do not include risks associated with future recessions or pandemics, or the effects of climate change.

As with previous Liberal spending plans, Budget 2022 attempts to normalize deficit spending. He lowered the bar for fiscal prudence. There are dangers with this approach, including the risk of being ill-prepared for the next fiscal crisis.

Canadians deserve a more responsible approach to federal budgeting than what they have seen this week.

Share.

About Author

Comments are closed.