Social Policy in Ontario

We need a plan to reduce the deficit

Posted on January 15, 2009 in Debates, Governance Debates

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TheGlobeandMail – Opinions – We need a plan to reduce the deficit
January 15, 2009. SCOTT REID

It’s becoming increasingly clear that what Canada needs is a deficit reduction plan. That’s right, a plan to responsibly reduce the deficit. A deficit that will be justifiably created when the budget is tabled on Jan. 27. A deficit that reportedly will top $40-billion. A deficit that responds – albeit belatedly – to the urgent need for a recession-battling, job-saving dose of fiscal stimulus.

And a deficit that the parliamentary budget officer tells us could last as long as 10 years.

Notwithstanding demand for action, news of a new federal deficit will not be welcomed by the public. Few Canadians are yet aware that such a sharp detour from the orthodoxy of balanced budgets lies ahead. Fewer still will applaud the return to red ink. Indeed, among the consensus that’s formed in favour of large-scale deficit spending, the only group left absent has been the voters.

None of which is to say this month’s budget should depart from the expected commitment to a substantial stimulus package and consequent deficit. It is the necessary policy response. But this emerging divergence between elite consensus and public expectation is fraught with risk.

The central tenet of Paul Martin’s successful fiscal efforts was a simple observation: Sweeping policy change best succeeds when the consent of the governed has been secured. Mr. Martin fostered and then relied on a nationwide enthusiasm for his fiscal prescriptions. But no such public consent has yet been granted for the accumulation of a new large deficit. Nor do we have the time necessary to gather such a public endorsement. Circumstances dictate that action must precede acceptance.

Perhaps if the Harper government had shown a little more agility with its initial policy response, things would be different. The past few months could have been put to use talking with Canadians about the choices facing them. Pledging surplus budgets and fictional asset sales only six weeks ago did little to condition Canadians for the change to come.

That being said, it’s likely that no smooth transition was possible from the catechism of black-ink budgeting. The public aversion to deficits has taken firm root over the past 15 years. It cannot be expected to dissipate overnight – certainly not based on the broad assurances of a government that has been wildly contradictory in its public communications.

Which opens the door for Michael Ignatieff. By taking up this cause, he can shrewdly align the Liberal Party’s economic message with the public mindset. Liberals should be the first to argue that government bears an obligation to couple any plan to explode the deficit with a corresponding program to later cut it back.

To be credible, such a program cannot be overly precise. But it must extend beyond windy promises that deficit financing is a temporary turn. Four commitments suggest themselves:

The stimulus package should be designed in the form of one-time capital transfers for infrastructure and endowments to entities such as the Canadian Foundation for Innovation. In this way, the budgetary hit will be mitigated.

A timeline should be established for reducing the deficit back to zero. Five years is a reasonable horizon.

A permanent all-party committee should be established to secure annual savings to federal program spending of no less than 2 per cent beginning in 2011 – and that transfers to fund health, education and social services would be targeted last and least of all.

Should any future surtaxes or levies be created to help reduce the deficit, they should be set up by law to last no longer than the five-year horizon.

Politically, these measures would give the Liberals a message distinct from the Harper government – one that echoes the need to act boldly now but reinforces the importance of ongoing fiscal stewardship. Economically, such an approach would serve to reassure a public unready for a sudden return to large deficits and calm taxpayers concerned that one of our great national advantages is being squandered.

When dealing with the sensitive psychology of a country in recession, this is no academic matter. Public and consumer confidence is the tonic that ultimately remedies recessionary pressures. A concrete commitment to fiscal responsibility is more than a political strategy. It is a vital component of our economic recovery.

Scott Reid was director of communications for former prime minister Paul Martin.

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