Trudeau’s deficits: Short-term gain, long-term pain

Governments have to pay interest too.
PHOTO: THINKSTOCK

Guess what was supposed to happen in 2019? Aside from this being an election
year, no more federal budget deficits. At least that was the pledge Justin
Trudeau made when he campaigned for his dad’s old job in Ottawa back in
2015. Since this is an election year, the Trudeau Liberal deficit addiction bears
some scrutiny.

Last time around, he laid out a platform that promised deficits of no more than
$10 billion a year for the first three years and we’d be deficit-free by this year. All
that planned spending during a period of non-economic turmoil was supposed
to bolster Canada’s so-called crumbling infrastructure and presumably cover
Liberal policy commitments.

Well didn’t Justin and his pals blow by that $10 billion in the first eight months,
clocking in at $12.7 billion. That compares to a $1 billion surplus under the previous
regime the year before. And they have been busting through that ceiling every
year since, abandoning any pretext of eliminating budget deficits. More than $75
billion has been added to the federal debt, compared to the $20 billion based on
the Liberal’s election plan.

Most folks have credit cards. If we spend on credit, we are required to make a
minimum payment and cover hefty interest charges.

Governments have to pay interest too, although not nearly as much as we do on
our credit card balances. But it’s okay for them because of a rationalization called
the debt to GDP ratio. That means the debt can pile up as long as the spender
continues to pay interest without refinancing or harming the economy. And it can
be pushed ahead for an eternity.

Not to worry, Trudeau says. The economy is humming, unemployment is low
and business profits are up. Besides, finance minister Bill Morneau contends
deficits and debts aren’t all that important.

Former Prime Minister Paul Martin supports the Trudeau government’s proclivity
for deficits, being a good Liberal and this an election year. He is also aware of
the danger presented by endless deficits and mounting debt.

In 1993, as finance minister, he faced a yearly deficit of $42 billion after successive
governments piled up red ink over the previous 25 years, starting with
Trudeau senior. It was alarming enough for the government to slash $25 billion
from the federal budget in three years and post five budget surpluses, which
allowed the government to ramp up its spending. Laser focus on the debt to GDP
ratio, of course.

But what happens if the economy goes south because of a recession? Or, for
example, an unexpected Trump eruption results in the US scuttling the NAFTA
redo? What if interest rates are hiked? Growing interest payments will impact
productive spending.

Here are some numbers to consider. Canada’s net debt as of 2017-18 was $758.8
billion with a $26 billion interest charge.

A finance department report shows federal deficits until 2040-41. The debt
will be almost erased by 2050, as the ratio drops from 28.5% in 2023-24 to 24% in
2055-56. But this dubious scenario presumes surpluses in the 2040s and 2050s go
directly to reducing the debt. It’s dubious because governments in the past (and
current) always found reasons to put off debt reduction.

By contrast, the 2014 version of the financial report under the Stephen Harper
regime projected decades of consecutive surpluses (perhaps equally dubious).
The Trudeau government wasn’t elected in 2015 on a platform that included
deficits and debt as far as the eye can see. Someone, please, revoke that credit
card. This is short-term gain for long-term pain that saddles future generations
with the risk and the fallout.