The incredible shrinking conservative deficit - Macleans.ca

The incredible shrinking conservative deficit

Emphasis on ‘incredible,’ says Stephen Gordon

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The Conservative government’s plan is to eliminate the deficit before the next election in 2015: it wants to campaign on a platform of tax cuts – income-splitting in particular – but it also knows that it can’t credibly do so unless public finances are in balance. This is the third budget in a row that has been crafted to fit this narrative, but it’s getting harder and harder to squeeze into it:

Projections for the current year’s deficit have been revised up from $19.4 billion to $25.9 billion, and forecasts for the 2013-14 deficit have been revised from $9.4 billion to $18.7. Today’s budget predict’s that the government will be able to go on to turn that $18.7 billion deficit into a surplus in the space of 24 months by letting its current strategy run for another two more years.

Apart from the self-imposed political deadline, there’s nothing special about the 2015 deadline for returning to surplus. And it may be that the world economy will finally begin to recover in earnest in the next couple of years, boosting Canadian GDP and Canadian government tax revenues. But what if it doesn’t? Will the Conservatives be forced to abandon their strategy of simply holding the line on nominal direct program spending and make deep cuts? Or will they have to re-think their 2015 campaign strategy?

The Conservatives can’t keep kicking the can down the road: they’re starting to run out of sidewalk.