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Conservative Andrew Scheer didn't seem keen on a nuanced debate about fiscal policy during the recent leaders' debate
During the most recent leader’s debate, moderator Paul Wells twice asked Andrew Scheer whether a Conservative government would adjust its promise to balance the budget in five years if confronted with a bad economic surprise.
It was a good line of inquiry. The previous Conservative administration watched oil prices collapse in 2014, heard all manner of warnings that the economy was in trouble, yet carried on with its plan to erase the post-crisis budget shortfall in time for the 2015 election.
We’ve been paying for that inflexibility ever since. With no help on offer from the Department of Finance, the Bank of Canada checked its desire to get borrowing costs back to a more normal level and cut interest rates twice in 2015. The benchmark rate sat at an emergency setting of 0.5 per cent for two years, inflating housing bubbles and tempting households to take on a dangerous amount of debt.
On Tuesday, Statistics Canada released revised calculations that show Alberta’s gross domestic product contracted about 4.1 per cent in 2016, compared with an early estimate of 3.6 per cent. The economy needed fiscal stimulus and we shouldn’t have had to wait for an election to get it. Scheer, finance critic, Pierre Poilievre, and a bunch of other high-profile Conservatives were members of that government. Based on their rhetoric to date, it’s unclear if they learned their lesson.
Scheer didn’t seem keen to have a nuanced debate about fiscal policy with Wells; Jagmeet Singh, the New Democratic chief; and Green leader Elizabeth May. (The Prime Minister skipped the debate.) After glossing over the question once, Scheer’s second response was a mashup of sound bites worthy of a Girl Talk record. I’ve provided an annotated transcript to help you make sense of it.
“We have made a commitment to get back to balanced budgets over five years. We are going to control the rate of government spending. That is how we are going to get back to balanced budgets.”
So budgets do balance themselves — seriously. Bank of Nova Scotia economists Rebekah Young and Marc Desormeaux estimate that if revenue trends hold, and spending doesn’t change, the deficit could be gone before the next election.
The federal government’s annual financial report , published on Tuesday, shows the deficit in the fiscal year that ended March 31 was $14 billion, almost $1 billion less than Finance Minister Bill Morneau predicted six months ago in his pre-election budget, as revenue grew faster than expenses. Public debt charges were 6.7 per cent of expenses, slightly higher than the previous year, but nothing compared to the peak of about 30 per cent in 1997, or even the 14-per-cent figure recorded in 2008.
“We have seen record levels of spending.”
This sounded like it was meant as an insult.
“We are going to maintain those levels.”
Except a Scheer government apparently would be comfortable with the broad outline of the current fiscal plan, probably because spending isn’t as out of control as Conservative rhetoric would have us believe.
Total federal expenses were 15.6 per cent of GDP in the fiscal year that ended March 31, about the same as when Paul Martin lost to Stephen Harper in 2006, according to Finance data . For comparison, the number was about 24 per cent in 1985 and about 18 per cent in 2010. The lowest in comparable data that date to 1984 was 14 per cent in the fiscal year that ended in March 2015.
“We are also going to eliminate wasteful Liberal spending like the $250 million that Justin Trudeau sent to the Asian Infrastructure Bank to build roads and bridges in other countries, so we’re going to repatriate that money and we’re going to get back to balanced budgets and we’re going to do it at the same time as increasing health care and education transfers. I have been very clear on that.”
Canada’s contribution to the Asian Infrastructure Investment Bank (AIIB) is “wasteful” in the same way using some of your income to purchase shares in Royal Bank of Canada is wasteful. While it represents a liability for accounting purposes, things would have to go terribly wrong for the federal government to lose money, and it stands to receive a disbursement when the institution’s profits exceed its needs, according to the Articles of Agreement . Canada’s one-per-cent stake in the AIIB, a creation of the Chinese government and based in Beijing, is a foreign-policy issue, not a fiscal one.
It’s difficult to bend the budget trajectory by nickel-and-diming. In 2011, the Harper government said it would shave a few billion dollars off program spending every year to help it get back to balance. Three years later, the 2014 Annual Financial Report noted that program spending had declined for four consecutive years, the first time that had happened, according to records that date to the early 1960s. “This decline reflects effective control of government spending,” the report said.
No doubt. But a review of the previous annual financial reports shows the big change each year was the tapering of the government’s crisis-era stimulus program. Harper erased the deficit by refusing to spend anew, not because he found lots of cuts to make. There is never as much “wasteful” spending as there appears to be.
“That is a firm commitment so we can lower taxes and put more money in the pockets of Canadians.”
That’s how he ended.
So far, Scheer has promised to drop the lowest income-tax bracket to 13.75 per cent from 15 per cent, and to provide tax credits for parents of newborns, those who put their children in arts programs, and users of public transit. The cost would to the treasury be about $7 billion by 2023, according to the Parliamentary Budget Officer .
The PBO forecasts the budget deficit will be $12.5 billion in 2023, based on legislated spending promises as of June. Scotiabank’s Young and Desormeaux think federal revenue will be at least $6 billion more than official estimates by the end of 2021, and perhaps as much as $19 billion higher.
By showing restraint on the campaign trail, Scheer could credibly promise to balance the budget in his first term without cutting social transfers. However, he appears to have concluded that his electoral fortunes will require some fiscal stimulus.
Copyright Postmedia Network Inc., 2019