It’s time for a tough-love budget – Opinion/Editorial – It’s time for a tough-love budget
Published: Wednesday, January 13, 2010

We’re looking forward to today’s release of the latest budgetary forecast by Parliamentary Budget Officer Kevin Page. The report, which projects Canada’s fiscal state forward five years, will apparently once again show what Mr. Page has been warning of for some time — that Canada is now mired in a structural deficit. In other words, even when the stimulus plan ends and the economy recovers, the federal government has committed to spend more every year than it can expect to take in. Billions more.

Finance Minister Jim Flaherty is quick to deny that this is the case, insisting that Canada will naturally grow out of the deficit as economic activity returns to normal levels, raising government revenues. This is to be helped along with promised fiscal restraint on the part of his government. We’d like to believe him, since a return to big annual budget shortfalls would be not only a big blow to the credibility of the Conservative party, but fiscally disastrous for a country already facing a looming demographic transition.

Unfortunately, given some of Mr. Flaherty’s past statements on such matters, we’re more inclined to trust Mr. Page. We recall with concern the seeming inability of Mr. Flaherty to see the looming crisis, and particularly the resulting deficits, until they were already upon him. Indeed, even while numerous private sector economists, and certain members of the opposition, were warning in the fall of 2008 that Canada was already running a deficit, Mr. Flaherty stuck to his guns, forecasting “slim surpluses.” He continued to do so as late as November of 2008, before standing up before the House and admitting to a deficit the next month. That deficit would eventually be predicted by Mr. Flaherty himself to top $56-billion in 2009.

One cannot go from predicting slim surpluses one month to running a $56-billion deficit the next and hope to remain credible. We therefore encourage the oft-mistaken Finance Minister to reconsider his position on letting the country grow out of deficit and to prepare strong corrective measures. A good place to start would be a plan to begin actively slashing federal spending. The Minister’s hands are partially tied by a series of commitments that can’t be broken — including defence spending and transfer payments to the provinces — but given the explosive rate of spending growth under a supposedly fiscally conservative government, we’re sure that there are vote-buying programs a-plenty that could be sacrificed on the altar of sound fiscal stewardship.

Many of these cuts would be painful, not only for the Canadians directly impacted, but for the government, too — dashing their hopes to spend and stimulate their way to a majority. But if the Conservatives wish to begin to undo some of the damage Mr. Flaherty’s erroneous predictions have done to their claim to the fiscally prudent high ground, shrinking the federal budget to better reflect the current state of the Canadian economy would help a great deal. (Columnist Adam Daifallah offers some helpful specific suggestions elsewhere on this page.)

As successive Liberal majorities in the 1990s proved, Canadians are quick to forgive governments for difficult cuts that ultimately promote the country’s long-term fiscal health. The Harper government, and Mr. Flaherty in particular, should consider that carefully before ignoring Mr. Page’s report today as quickly as they have all his others.

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