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04/26/2018 15:38 EDT | Updated 04/26/2018 15:51 EDT

Ignore The Conservatives Crying Wolf Over Liberal Budget Deficit

While it would always be preferable to balance the budget, there is little reason to worry about running a deficit equaling roughly one per cent of GDP.

Chris Wattie / Reuters
Prime Minister Justin Trudeau, right, and Finance Minister Bill Morneau, left, walk from Trudeau's office to the House of Commons to deliver the budget on Parliament Hill in Ottawa on March 22, 2017.

The Conservative Party and its corporate media cheerleaders have been stoking hysteria about the Trudeau government's plan to run deficits for the foreseeable future. Right-wing commentators describe these modest deficits in ominous terms, while Conservative politicians like former Finance Minister Joe Oliver intone portentously about the need for fiscal sanity before Trudeau spends all our hard-earned money on magic yoga beans or other such nonsense.

What is needed, according to these solemn, sober, dark-suited men, are balanced budgets and tough choices. This narrative of fiscally responsible right-wingers engaged in a perpetual battle with free-spending, deficit-loving leftists is widely accepted in the public imagination. However, recent history demonstrates asking a Canadian conservative to manage the country's finances is akin to hiring a fox to guard a hen house.

Despite the hyperventilating of Canada's right-wing press, the national debt is relatively low and easily managed. Canada has a low debt-to-GDP ratios compared to other countries in the developed world, and it is projected to continue falling over the next decade. Canada's borrowing costs are low, it has an excellent credit rating, and the cost of servicing the debt is not onerous. While it would always be preferable to balance the budget, there is little reason to worry about running a deficit equaling roughly one per cent of GDP.

Canada is well-positioned to withstand the massive Harper deficits, as well as the much smaller ones proposed by Justin Trudeau, with relative ease.

The modest deficits of the Trudeau government pale in comparison to the massive deficits incurred by the Harper administration. The Trudeau Liberals will likely run deficits totaling between $50 to 70 billion, amounts which will be added to the national debt. This represents less than five per cent of GDP in total, whereas the Harper Tories added more than $150 billion in 2015 dollars, or roughly 10 per cent of GDP.

Conservative partisans argue Harper faced a disastrous financial crisis which necessitated deficit spending. This point is well-taken, but it is worth remembering how ill-prepared Harper was and how poorly he responded to economic turmoil. During the crisis, Harper attacked opponents who argued Canada might need to run a deficit, before proceeding to exponentially increase the debt through six years of deficit spending.

Before the recession, Harper was so sanguine about the future that he eliminated the government's surpluses and excess fiscal capacity mainly through ineffective cuts to the GST. Throughout the recession, his government continually implemented economically senseless tax credits. These new spending programs, dishonestly billed as tax cuts, were costly, inefficient and disproportionately spent on wealthier Canadians. Harper's reckless tax and spending policies increased the size of the deficits necessitated by the Great Recession by at least $14 billion annually. Future generations will pay this bill.

Jo Yong hak / Reuters
Former Prime Minister Stephen Harper, left, gestures as he speaks next to then-Finance Minister Jim Flaherty, right, at a news conference at the G20 Summit in Seoul on Nov. 12, 2010.

Luckily, Canada is well-positioned to withstand the massive Harper deficits, as well as the much smaller ones proposed by Justin Trudeau, with relative ease because of a legacy of nine consecutive balanced budgets by the Liberal governments of Jean Chretien and Paul Martin. Liberal prudence came after the downgrading of Canada's credit rating in the mid-1990s and followed a decade of fiscal profligacy under Conservative Brian Mulroney, who added more, in real terms, to the debt than any PM before or since, even surpassing his oft-maligned predecessor, Pierre Trudeau.

The truth is, despite their protestations, many right-wing ideologues secretly like deficits because they create the conditions which necessitate deep spending cuts. Mulroney's fiscal ineptitude forced Paul Martin to carry out the savage cuts to public services and social programs that allowed the Liberals to balance the budget. This phenomenon is known as "Stockman's revenge" after Ronald Reagan's Budget Director, who hoped the massive deficits created by tax cuts for the rich and a massive military expansion would be paid for by cuts to social spending.

The policy prescriptions favoured by the chattering classes of the right prove their ostensible concern about deficits masks a preoccupation with reducing the size and capacity of government. A genuine fiscal conservative concerned about deficits would propose spending cuts and tax increases to address the problem.

Modest tax increases on the most fortunate segments of society could eliminate the deficit and finance essential new spending programs to address poverty and inequality.

While right-wing commentators and anonymously funded "think tanks" are unrelenting critics of government spending, they never propose even modest tax increases. They invariably argue for tax cuts tilted towards the rich as the cure for every fiscal challenge. Incredibly, they assert tax cuts will spur such rapid growth that government revenue will rise, despite the fact the evidence suggests this is wishful thinking. Many of these erstwhile deficit hawks simultaneously insist Canada must copy the Trump administration's plan to slash the corporate tax rate, despite the fact Trump has exploded the deficit and put the U.S. national debt on an unsustainable path.

As soon as Trump's tax cuts for the rich became law, Republicans invoked the spectre of deficits to begin campaigning for an end to medicare, medicaid and social security. Canadians should expect a future Conservative government to attempt the same scam. The tax cuts for the rich they will undoubtedly propose will be expensive and will "force" them to cut social programs in the cause of taming the deficit. Conveniently, the "need" to balance the budget will also silence any discussion of a national daycare program, universal pharmacare, increased transfer payments to cash-strapped provinces still suffering from the Chretien/Martin cuts, or any other investments in the welfare of poor and middle-class Canadians.

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Canada ranks 24th out of 35 OECD countries in tax-to-GDP ratio, well below the OECD average and more than 10 per cent below the countries at the top of the scale, many of which are also consistently ranked as the best places in the world to live. Modest tax increases on the most fortunate segments of society could eliminate the deficit and finance essential new spending programs to address poverty and inequality.

Canadian society has urgent needs and the fiscal capacity to address them. It is well past time to ignore conservatives who cry wolf about deficits.

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