11/08/2011 05:57 EST | Updated 01/08/2012 05:12 EST

Federal Deficit Targets Missed, But Tories Don't Pay Political Price


OTTAWA - It was the surprising showcase campaign promise of the Conservative election bid just six months ago.

The federal deficit would be eliminated a year earlier than forecast, Prime Minister Stephen Harper told an adoring, partisan crowd in Mississauga, Ont.

"Our platform is realistic, accurately costed and looks four years down the road," Harper, who was introduced at every campaign event as a "trained economist," said that day in early April.

Erasing the deficit by 2014 was more than an accounting triumph en route to Harper's majority government win on May 2. The deficit promise had cascading policy implications for other elements of the Conservative platform.

A $2.5 billion income-splitting scheme for two-parent families? Conditional on a balanced budget. So was the pledge for an adult fitness tax credit.

Not surprisingly, those campaign pledges weren't mentioned Tuesday when Finance Minister Jim Flaherty stood in Calgary and announced his government's worst kept secret — Ottawa's books will not be balanced by 2014-15.

"Let me be clear: we will not be bound by ideology when it comes to making decisions to keep our economy strong and protect Canadians, their financial security and their jobs," said Flaherty as he released his fall economic update.

"We have responded to critical situations with flexibility and pragmatism, and we will continue to do so as situations dictate."

A spokeswoman in Flaherty's office later confirmed those conditional platform promises will only be implemented "when the federal budget is balanced."

Economists — and likely many Canadians — reacted to Flaherty's deficit forecast with a yawn.

After all, Europe is in a full-blown sovereign debt crisis and the United States is mired in trillion-dollar shortfalls.

"What people have to bear in mind is that the deficit now is quite modest," Andrew Jackson, senior economist for the Canadian Labour Congress and not exactly a Conservative cheerleader, said in an interview Tuesday.

"Whether it goes below zero or remains a little bit above zero is not really much of an issue. The debt will still be shrinking as a share of GDP — something a lot of people miss."

Former Harper adviser Tom Flanagan, a fiscal hawk, was equally blase.

"Voters in general are taking a very big-picture view of things: Is the government moving in the general direction they approve of?" said the University of Calgary political science professor.

Canadians are savvy enough, said Flanagan, to understand "fluctuations of a few billion one way or another."

What's not clear is whether there's any sea change in Canadian public opinion about the necessity of balanced books.

If the Conservatives thought advancing the deficit elimination timetable by a year was a big political winner in April, why is pushing it back a year or two not a big liability in November?

"We do see there is a kind of tolerance for deficits but an orthodoxy around balanced budgets, and I think that's what this government is trying to tap dance around," Allan Gregg, chairman of pollster Harris-Decima, said in an interview.

Paul Martin, the Liberal finance minister who slew Canada's debt and deficit dragon in the mid-1990s, said Canadians faced a very different situation then.

Canada's debt-to-GDP ratio was approaching 100 per cent, near the same perilous territory that is engulfing Greece and threatens Italy, Portugal and others in Europe.

Voters recognized something had to be done, said Martin, but were loathe to accept the tough cuts that come with deficit reduction.

What made it work, he said, was that his government kept meeting and exceeding its targets.

"In other words, we were not asking Canadians to make a sacrifice in a hopeless cause .... I think that's one of the reasons Canadians got behind us," said Martin.

"I felt part of the bargain with Canadians in terms of the cuts that had to be made was that we would either meet or better our targets — and in the deficit fight we never missed a target."

It's a lesson the Conservatives have yet to learn.

"Let me be crystal clear," Harper said during the 2008 election campaign. "A Conservative government ... will not be running a deficit. We will keep our spending within our means."

Two months later, the government delivered a budget that forecast a $33.7 billion deficit in 2009-10, which actually turned out to be more than $55 billion.

"Mr. Flaherty is in the unenviable position of not having hit a single target that he set for himself since becoming minister of finance," said Bob Rae, the interim Liberal leader.

Rae acknowledged that "no sensible person is in a state of shock that Canada has been buffeted by what's taking place in the United States and in the European economy at all." But he slammed the Harper government for repeatedly setting targets as though Canada was immune.

"I think what matters is that they are pretending to be masters of the universe and they absolutely are not."