Factors beyond Ottawa’s control have pushed the federal government into a deficit position. More spending, says Sean Speer in the Sun chain of newspapers, could put us in a budget hole from which it will be difficult to extract ourselves.
Speer is the author of a recent MLI commentary on devising a plan for balancing the federal budget.
By Sean Speer, Feb. 26, 2016
What’s the old adage about being stuck in a hole? The answer, of course, is stop digging. Yet some are calling on the federal government to reach for a bulldozer when it tables its budget next month. The risk is that we end up with a fiscal hole we can’t get out of.
The minister of finance’s announcement this week that the government’s budget projections have deteriorated is far from a surprise. The economy has weakened in large part due to falling global energy prices and this is translating into lower revenues for government.
The government is now anticipating deficits totalling more than $30 billion over the next two years, and this doesn’t even account for its own spending commitments on infrastructure, Aboriginal education, and other priorities.
The minister can’t be faulted for changes in the government’s revenue outlook. He has no control over global commodity prices. And there’s even a credible argument that it’s impractical to try to make up for the short-term revenue hit with significant spending cuts.
But the government now finds itself in a fiscal hole and is anticipating deficits for the foreseeable future. What should it do about it?
Here’s where calls from some quarters for more digging – in the form of big spending increases – could get us stuck in a budget hole from which it’s hard to extract ourselves. Some may dismiss this concern as alarmist but consider our own recent history of perpetual budget deficits.
Ottawa ran 27 consecutive deficits until the mid-1990s when the then-Liberal government was forced to put down its shovel and take steps to get the government out of its budgetary hole. No one planned for a quarter century of deficits. It wasn’t a grand design or a malevolent plan to bring the government into “banana republic” status. It was an accident – a consequence of the perverse incentives that governments face to spend, spend, spend – and a reminder that we shouldn’t be lax about going into deficit in the first place.
It also means that if the government falls into a hole, it should have a clear plan to get out. Here’s where the government would be prudent to revisit its plan to repeal the Balanced Budget Act.
The legislation doesn’t preclude the finance minister from running a deficit but it requires him to submit a plan to Parliament on how it will get out of it and imposes some accountability to stick to the plan. It’s not perfect. Some have argued the legislation is toothless and ought to be strengthened.
But it can be a useful tool for holding the government accountable and to avoid falling into a sinkhole. The minister should therefore embrace it – it may help his Cabinet colleagues with special interests demanding more spending.
This week’s announcement about the government’s budget deficit takes some of the surprise out of next month’s budget. We now know that we have a fiscal hole. The minister would be smart to stop digging and set out a clear, credible plan to get out of it.
Sean Speer is a Senior Fellow at the Macdonald-Laurier Institute and co-author of the recent essay, From a Mandate for Change to a Plan to Govern: Avoiding the Federal Deficit Quicksand
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