POLITICS

Federal Budget 2015: What's Really So Bad About Running A Deficit?

04/21/2015 09:20 EDT | Updated 04/21/2015 09:59 EDT

OTTAWA — What’s wrong with the federal government’s running a deficit?

Scott Clark, a professor, consultant and senior bureaucrat who served as deputy minister at Finance under Jean Chrétien’s Liberal government, believes Canadians have been tricked into believing that only bad fiscal managers run deficits.

“Everyone has become indoctrinated with the view that if a government were to run a deficit that would be a bad thing, that deficits are a bad thing,” Clark told The Huffington Post Canada. “Poor Mr. Mulcair is even afraid of saying the word deficit.”

Canadians should be more demanding and critical, Clark said. When a country is in as good financial shape as Canada, he said, now is the time to help the country grow by investing in social programs or building infrastructure.

“Now is the time to borrow money. Our government will sell a 30-year bond for two per cent — that is how low interest rates are. If I build a rapid transit system, it earns the economy eight per cent, let’s say, because everybody travels faster, it’s more efficient, income in the economy goes up, we tax it at 40 per cent and the investment pays for itself,” Clark said.

“But you can’t say that [publicly], because it involves a seven-letter word: deficit.”

“It doesn’t mean you should go crazy,” he added. “[But] what’s wrong with having a deficit of one per cent of GDP as long as you continue to manage your finances in a proper way, where the debt doesn’t continue to go up as a share of the economy?” he asked. “There is nothing wrong with it.”

“Mr. Oliver will say you never run deficits and increase debt — although they did do it for seven years, eight years — because you are leaving your children debt,” Clark said. “Well, … if you don’t invest in infrastructure, if you don’t make sure that you are having efficient transportation systems like highways, rapid transit systems, modern education systems or invest in social infrastructure, what are you leaving your grandchildren? Same problem,” he said.

“You are leaving a huge decrepit infrastructure that they are going to have pay for. It’s going to cost a lot more money, and interest rates are probably going to be a lot higher.”

The finance minister says you can’t leave your grandchildren debt, Clark said, but he argues instead that what they can’t be left with is a higher debt burden.

“You shouldn’t leave your grandchildren a situation where they can’t manage the debt because the economy is not growing fast enough to manage [it].”

Oliver wasn’t available for an interview Monday, but Janice MacKinnon, the head of his economic advisory council and a former finance minister from Saskatchewan, said there are good arguments not to run a deficit right now.

At its most recent meeting, the group came to consensus, MacKinnon said. Its members — prominent Canadian business people with investments and interests around the globe — were appointed last summer and paid a $1 a year to advise the finance minister. They concluded, MacKinnon said, that the world is in a period of “unbelievable uncertainty” in terms of economic, political and security issues and that this is a major concern — above and beyond the drop in the price of oil that is affecting Canada domestically.

“Their conclusion was that, therefore, it was central that the federal government keep its books balanced and keep them balanced in order to be able to be in a position to respond, when and if — and there is an if — real trouble comes and they have to spend,” she said.

“They said that in an uncertain time, this is not the time to run deficit, it is the time to hold your powder so that if you do get into trouble, or the global economy does….then you have the capacity to spend the money,” she said. “If you start spending it now ... by the time you are finished, and some real problems come, you already have a sizable deficit to deal with.”

Green party Leader Elizabeth May, however, believes, like Clark, that “a small deficit in the current climate isn’t a big thing.” Long-standing debt is a bigger issue, she said, but she thinks the finance minister should be stimulating parts of the economy now that can benefit from a low dollar.

She’s not the only party leader that doesn’t seem to be buying into the Conservative idea that all future budgets need to be balanced.

Earlier this month, when he was asked whether he was open to running deficits, NDP Leader Thomas Mulcair declined to answer, telling reporters: “We’ve always said that we would be very prudent administrators.”

The Liberals are also refusing to say categorically no to deficits. Deputy leader Ralph Goodale suggested last week that the Grits were leaving the door open to running a but he insisted that fiscal responsibility would be an absolute fundamental in the Liberals’ platform.

Perhaps Canadians can tolerate deficits after all.

Also on HuffPost

(2014) Who's Got The Highest Taxes?