Politics·Analysis

Promising back-to-back deficits isn't political suicide in Canada anymore

There was a time, not too long ago, when any federal party leader promising back-to-back deficits could expect scorn and mockery. But Canadian federal politics has changed since the Chrétien-Martin years.

The Conservatives' softer line on budgets shows the deficit isn't a burning issue for many voters

Liberal Leader Justin Trudeau boards his campaign plane in Ottawa on Sunday, Sept. 29, 2019. (Ryan Remiorz/The Canadian Press)

The church of the balanced budget — inaugurated by Saint Paul of Windsor in 1995 — has been losing power for some time now, even if it retains significant allure.

But with balance no longer universally accepted as the be-all and end-all, a more interesting choice has emerged for voters.

The first blow against balance came in January 2009 when Stephen Harper, who had once vowed never to spend into a deficit, was compelled to acknowledge that running a deficit wasn't necessarily a bad thing — that sometimes it's even the right thing to do.

In that case, it was the Great Recession that necessitated a quick influx of government spending. For the fiscal year of 2009-2010, the Harper government ran a deficit of $56.4 billion. Before they were done, the Conservatives ran six years of annual deficits, totalling $157.8 billion.

Stephen Harper abandoned his deficit pledge in the face of a global recession. His successors are finding it easier to put off deficit elimination to a later date. (Jose Luis Magana/Associated Press)

Still, it was considered heresy when Justin Trudeau announced in 2015 that a Liberal government would run three years of deficits to boost a sluggish economy. One newspaper described the plan as "political suicide." Shortly thereafter, Trudeau's Liberals won a majority.

Once in office, the Trudeau government pushed things further — first because of economic circumstances, then because of its own choices and priorities — resulting in deficits of $19 billion, $19 billion, $14 billion and $19.8 billion.

Tax cuts vs. spending hikes

Harper's deficits could be traced to his decisions to cut taxes — the GST in particular. Trudeau's deficits had more to do with new spending on federal programs.

While running for the leadership of the Conservative Party in 2017, Andrew Scheer vowed to balance the budget within two years of forming government. But as the 2019 general election neared — and with budget cuts by Doug Ford's provincial government angering voters in Ontario — Scheer lost some of his enthusiasm for swift deficit elimination. In May, he announced that a Conservative government would instead take five years to balance the budget.

Federal Conservative Leader Andrew Scheer softened his stance on deficits after winning the party leadership. (Nathan Denette/The Canadian Press)

The Liberal platform released on Sunday nudges the goalposts again. With promised new spending, a re-elected Liberal government would run larger deficits, starting at $27.4 billion in the first year and declining to $21 billion in the fourth.

The Conservative response was notable for what it lacked. Conservative finance critic Pierre Poilievre's primary argument was not that the deficits were themselves immoral or fundamentally unsound. Rather, he claimed the deficits inevitably would lead a Liberal government to increase taxes — tax hikes the Conservatives claim Trudeau is concealing now.

That attack might resonate more if the Harper government's deficits had triggered the same consequences.

The difference between 1995 and now

Economists like Kevin Milligan argue that the current deficit is not a matter for great concern — that government debt is not like household debt, borrowing rates are low, the situation in 2019 is not what it was in 1995 and recent deficits have been relatively modest.

The debt-to-GDP ratio — the debt as measured against the entirety of the national economy — was 31.5 per cent in 2014-2015. The Liberals now project that, even after eight years of deficits, it will be 30.2 per cent of GDP in 2023-2024. (For the sake of comparison, the debt-to-GDP ratio was 66.8 per cent in 1996, when Jean Chrétien and Paul Martin were compelled to cut spending.)

But the bottom line still resonates in political news coverage and partisan debate. It's an easy way to measure a budget or a platform, something that can be quickly understood — unlike the relative value of the actual spending and tax commitments that a government or party makes. "Is the budget balanced?" is a much easier question to answer than, say, "How much should the government be spending to help families?"

Spending into a deficit can be easily described as reckless. But it's not clear the public is much more concerned than the average economist.

Other priorities

Just 13 per cent of respondents to an Ipsos Reid survey earlier this month said government debt was among their three most important election issues. An Angus Reid Institute poll found only three per cent of uncommitted voters considered it their top issue. In both polls, issues like climate change, the cost of living and health care rated much higher.

That combination of economic and public sentiment may have given Trudeau room to promise more. But it's also not clear how far the public's patience with red ink might last.

The most expensive item in the Liberal platform is the promise to raise the personal income tax deduction, but its new commitments also include a boost to the Canada Child Benefit for families with children under a year old, new breaks for post-secondary students, a boost to Old Age Security and new spending to mitigate climate change. In all, the Liberals are effectively offering to push slightly harder in the direction they've set out over the last four years.

Scheer's Conservatives are still committed to a greater degree of frugality. That, along with a series of promised tax cuts, should compel them to present a different picture of what a federal government would do when they table their complete platform — to present their own approach as a stark contrast with what the Liberals have planned.

In 2011, Harper's Conservatives promised $1.6 billion in new spending, while Michael Ignatieff's Liberals countered with a platform that included $5.5 billion in new initiatives, all of it covered by corresponding tax increases or spending cuts.

In 2019, instead of arguing within a box created by competing desires to both balance the budget and avoid broad-based tax increases, the platforms of the two main federal parties could be upwards of $20 billion apart.

That is not a small amount of money.

If the orthodoxy of the balanced budget has weakened, it has left room for a clearer choice.

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About the Author

Aaron Wherry

Parliament Hill Bureau

Aaron Wherry has covered Parliament Hill since 2007 and has written for Maclean's, the National Post and the Globe and Mail. He is the author of Promise & Peril, a book about Justin Trudeau's years in power.

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