Deficit talk is unconservative
Published: Saturday, November 01, 2008
Who did we just elect? Jack Layton? The last people in the world we would ever have thought would flirt with deficits are the key players in the newly elected Conservative government.
Yet, there is Finance Minister Jim Flaherty -- who certainly will not be off-message with Prime Minister Stephen Harper -- declaring, "we will never . . . engineer a surplus at any price."
So much for election promises. During the recent federal campaign that returned the Conservatives to power, Flaherty and Harper specifically ruled out a deficit. Now, it is understood that when situations change, so too may responses. Yet, this was less than a month ago. What changed the situation, the government's understanding of it, or the party's need to convince Canadians that the Tories were the best people to deal with lagging economies?
Leaving that a rhetorical question, the government does have a problem on its hands. As Canadian business echoes the recession that now seems likely to engulf larger economies than ours, revenues will fall and demands on government coffers will grow: Employment Insurance, for instance.
Meanwhile, the government finds itself locked into payments, such as interest on the national debt, which in the short run at least, leave little room for manoeuvre. As much as two-thirds of planned expenditures are committed in this way, leaving only a third of Ottawa's budget with any room for discretion.
In such circumstances, conventional economic theory endorses temporary deficits as a means to cope. Many voices are suggesting that Ottawa will not only find itself with no choice but to run a deficit: Predictably, some -- those who love government programs -- say it should feel no caution in doing so, either.
The problem is deficits seldom stay temporary. They are, in fact, more addictive than crack and Canada had a grim run of them stretching from days before Trudeau, to the Chretien era. In that time, more than $540 billion was borrowed, of which $457 billion remains outstanding.
It is for this reason that Flaherty should reconsider his words, as he and the prime minister prepare to meet with the provincial premiers next month.
Not unnaturally, they fear Ottawa may arbitrarily slash equalization, or the transfers the provinces rely upon to top up their health and welfare budgets: That certainly was how Paul Martin balanced the federal budget in the mid-'90s. (And not, as he implies in his current sour-grapes public pronouncements, by some unusually clever Liberal economics -- unless one finds genius in consistent over-taxation to produce a surplus.)
Yet, that might turn out to be Harper's best practice, once the federal low-hanging fruit are plucked. As the two Harper budgets both registered sharp spending increases, there may well be some of the latter.
However, there is no persuasive argument for exonerating provincial governments -- many of whom have displayed a remarkably casual attitude to deficits in the past -- from doing their share to cope with these challenging times. On this, Harper and Flaherty should keep their options wide open.
Most of all, they should start governing and sounding like conservatives.
© The Calgary Herald 2008
Saturday, November 1, 2008
Posted by Fillibluster at 1:32 PM