There’s a reason Justin Trudeau no longer says, “The budget will balance itself.” It won’t. He made the famous comment in 2013 immediately following a Conservative budget. The full quote is, “The commitment needs to be a commitment to grow the economy and the budget will balance itself.” Very well, if spending is restrained and economic growth raises government revenues with it, then yes, you get out of red ink and back into black.
Although there is some argument with the accuracy of the figures, the first half of fiscal 2015-16, when the Conservatives were still in power, suggested a small surplus. But now that the budget had balanced itself, Trudeau didn’t want it balanced.
In the 2015 election campaign, Trudeau had a new approach: let’s run deficits to spend on infrastructure because interest rates are so low. In August that year, he pledged to run “a modest short term deficit” of less than $10 billion for the first three years, then balance the budget in 2019-20.
In a comment hindsight can reveal as insight, Stephen Harper expressed skepticism on the campaign trail. “He now says he will run a modest deficit, a tiny deficit, so small you can hardly see it,” he said. “And only for three years, so three modest, little deficits, and maybe $10 billion each, a modest, $10-billion deficit to start with. “Friends, we've gone through this before. Look at the mess in Ontario with a ‘modest deficit’ from a Liberal government.”
As it turned out, the deficits weren’t so modest and the balanced budget never happened. After annual deficits of $19 billion and $14 billion, fiscal 2019-20 year had another deficit: deficit of $39.4 billion. The pandemic left annual deficits of $327.7 billion, $90.2 billion, and our best guess is fiscal 2022-23 will come in at a deficit of $43 billion. Now that Bank of Canada lending rates have risen from their historic lows, the weak justification of running deficits for infrastructure is over. The pandemic is also over.
What the March 28 budget should have shown is a government that finally reigns in spending so that “the budget will balance itself.” But no. The projected federal deficit is $40.1 billion for fiscal 2023-24, slowly shrinking to $14 billion by 2027-28. What? Five months ago, the Trudeau government projected a balanced budget by 2028, nine years after its original promise. Now it is on pace to increase the debt by $131 billion by then, and a return to a balanced budget is nowhere in sight. Even after adjusting for inflation and population growth, the federal government will spend 7.4% more this coming year than it did in 2019-20.
Since taking the reigns in 2015, the Trudeau Liberal government has adopted a “fiscal anchor” of a slowly decreasing debt-to-GDP ratio. However, that anchor didn’t hold in this year’s budget as that ratio is rising to 43.5%. That means the government is amassing new debt faster than it expects the economy to absorb it. The merit of this “anchor” has been justifiably criticized.
Ottawa is spending way beyond its means, but not quite as egregiously so as in previous years. So Finance Minister Chrystia Freeland calls it “fiscal restraint.” A few metaphors illustrate the problem better than wonky economics. A sky diver jumps out of a plane. After a long time in free fall, she opens her parachute, but there is more holes than fabric. She continues to fall at a fatal rate, but not as quickly as before.
An alcoholic is drinking less than he used to on average, but at rate that would still leave her competition passed out under the table in a competition. Also, paying for this consumption continues to mean a growing credit card bill, just not as quickly as before. She has a “responsible fiscal plan” and exercising “restraint.” She totally has this under control, just trust her.
Or maybe the alcoholic is a literal drunken sailor. Her boat is taking on water, but thanks to her self-congratulatory efforts, she is taking on water less quickly. Is it evaporating faster than it is coming in? No, of course not. The skipper should be bailing until that boat is completely free of water, but no. In fact, when you ask her, “When are you finally going to start bailing out more water than is coming in?” she says, “That’s too far ahead to think about.” How much longer can this boat keep floating, let alone get anywhere? Passengers on this boat have few choices.
They can plead with the skipper or give her head a shake, they can get out and swim to a different boat (move abroad), or they can take her hands off the wheel and put someone else on the helm (in a change of government).
As it is, this ship is slowly but surely going down.
Lee Harding is a Research Fellow at the Frontier Centre for Public Policy