The red in our Maple Leaf is for chronic deficits - Macleans.ca
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The red in our Maple Leaf is for chronic deficits

Opinion: History shows Canadian politicians will rack up debt through bad times and good. The result: ever-constricted choices for the very people politicians hope to serve.


 
(Shutterstock)

(Shutterstock)

Mark Milke is author of Tax Me I’m Canadian: A taxpayer’s guide to your money and how politicians spend it.

With the federal government’s recent quarterly update, and the decision to forego fiscal prudence, again, Finance Minister Bill Morneau and his colleagues are following a longstanding Canadian tradition that’s existed since the Second World War: always rack up debt in bad times, then continue piling it on through much of the good times, too, leaving little room to ever be prudent and balance the books. The result: ever-constricted choices for the very Canadians politicians hope to serve.

Some background: The federal Finance department produces an annual set of tables that track federal and provincial spending, revenues, deficits and debt. The Fiscal Reference Tables, as they are known, are not exciting reading, and have their shortcomings. The tables show what the various governments claim in any given year: a deficit, or a surplus. That is less helpful than one would suppose because of how some governments try to hide expenses. (See: Kathleen Wynne government versus the Ontario Auditor General, circa 2017.)

READ: A brief history of high taxes and government meddling

Still, if you want the eagle-eye view of how frequently governments spend on you, but bill your kids and grandkids—even if you are 20 years old and have neither yet—here’s the rundown.

First up, the federal government. Using recent and archived tables that trace money flows back to 1947, one can see two golden periods for federal balanced budgets: in the late 1940s until the early 1950s—a period when the federal government was reducing military expenses—and between 1998 and 2008, when Ottawa recorded a record 11 straight surpluses. The latter was prompted by mid-1990s budget cuts after international debt rating agencies cut Canada’s credit rating and the Wall Street Journal and others began taunting Canada’s fiscal profligacy.

Federal deficits in 70 per cent of all years since 1947

Other than those eras, the federal government was in the black in just two years: 1970 and 2015 (and note the years refer to a fiscal year-end, i.e., March 31). That was it. In seven decades of budgets, Ottawa ran surpluses in just 21 years and deficits in 50 years, equal to 70 per cent of that stretch.

Now compare Ottawa’s red ink record to recession years. Since the Second World War, Canadians have endured 10 recessions that lasted 12 years in total. (Some lasted longer than a year, so I count that as a two-year recession and I count those shorter than a year as one full year.)

Federal-deficit-and-surpluses

Expressed another way: the federal government’s red ink budgets (50) lasted four times longer than the years in which Canada has been in a recession (12). Even if that ascribes to Keynesian policy—spend during bad times and run budget surpluses in good times—history shows federal politicians just keep spending through it all. They routinely ignore that latter bit of Keynesian advice.

Provincial deficits: 86 per cent of all years since 1967

For provinces and territories, the fiscal tables do not reach back as far as the federal balance sheets. Nevertheless, from 1967 to 2017 (with all years ending March 31), the provinces and territories collectively cobbled together balanced budgets in just seven years: 1965, 1978, 1988, 2005, 2006, 2007 and 2008. The provinces and territories ran combined deficits 86 per cent of the time.

READ: What tax grab politicians in Canada could learn from Hong Kong

And now compare that record to recessions. There have been five recessions since 1967 that occupied a total of seven years, contrasted with 43 years of provincial and territorial red-ink budgets. The provinces thus ran deficits six times longer than they were in recession.

Provincial-deficit-and-surpluses

Why this matters

With an insincere apology to Stalin, one dollar in interest may be a tragedy, but a billion dollars in interest is a statistic—so let’s make this more real.

In fiscal 2017, the federal government paid $24.1 billion in interest on the federal debt. What could that have “bought” instead? Answer: a complete cut to Employment Insurance premiums for employees and employers, which brought in $22.1 billion that year, with $2 billion left over.

Provincially and in the territories, debt interest cost taxpayers $29.2 billion in fiscal 2017. That could have paid for the end to $25 billion worth of provincial payroll and workforce taxes, plus an elimination of the provincial portion of all property taxes, country-wide. After that, there would still be $4 billion left over.

I grant reasons exist why governments need to run deficits: war years, or when a recession hits. But when politicians run deficits 70 per cent of the time at the federal level and 86 per cent of the time at the provincial level, they are abusing their self-appointed privilege.

What becomes clear from the dry data is that governments don’t need the recession excuse to spend their (our) way into red ink; that’s just routine policy. It is also costly to other potential destinations for the cash.

MORE ABOUT DEFICITS:

Provincial-deficit-and-surpluses


 
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The red in our Maple Leaf is for chronic deficits

  1. Too bad the author didn’t major in economics and math. Otherwise, the examples provided would have been a little more on point and/or more elucidating. The examples of diverting interest payments to other expenses obviously has no mathematical effect on the size of a deficit; worse, EI is a pool not a program.
    It is true that governments don’t need an excuse to run a deficit although sometimes they can make one up: conservatives like to speak of cutting taxes as that sounds better than reducing revenue and increasing deficits; another spin is to frame increased spending as stimulating the economy as opposed to increasing the deficit or reducing the surplus. And, apparently, a balanced budget is something that always occurs in the future. The Liberals under Chretien turned chronic deficit into surplus after a handful of years and sustained surplus from mid 97 until the Harper Conservatives took over in 2006 flipping the balance in just two years while stridently proclaiming the importance of balanced budgets. As time progressed, the Liberals cut the debt to GDP ratio in half to near 30% then the Conservatives increased it by a third but now its going back down to near 30%; the tricky bit is how much of the deficit is debt reduction. Another issue is what portion of government spending supports public services, how much adds to public property and how much (including tax spending) is transferred to private enterprise. Another issue for the fed is that it’s partners, the provinces, have a good deal of control over disbursement of federal funds: bad management on their part ripples up to the federal budget with economic distress at the provincial level pulling down the federal balance.

    • Facts: Department of Finance Canada Debt-to-GDP ratios
      1996: 68%
      2005: 39%
      2009: 28%
      2011: 33%
      2014: 32%
      2015: 31%
      2016: 35%

      Clearly the ratios have gone up.

      Remember all the money Trudeau Sr. borrowed in the early 80s at the then highest interest rates in the modern world? Thanks to compounded interest — we are still paying off that stupid interest.

  2. If the government sector runs a surplus, the non-government sector must be running a deficit. However, households are already highly indebted and must cut back spending, while businesses will not invest when there is lack of demand. Canada is also importing more than we export which means more money leaving than entering the domestic economy. Only one remaining actor can pump funds into a stagnating economy. In order to prevent a downward spiral leading to even more unemployed joining the 1.2 million Canadians already actively seeking work, the federal government must run deficits, and according to former Bank of Canada Governor David Dodge, “perhaps of a considerable magnitude”.

    Former Bank of Canada Governor David Dodge said provincial and federal governments should run budget deficits
    http://www.bloomberg.com/news/articles/2015-04-29/dodge-says-canada-needs-higher-interest-rates

    “Former Bank of Canada Governor David Dodge said provincial and
    federal governments should run budget deficits to fund infrastructure
    projects, which would lift the economy …..

    ***

    “The right thing to do is to run cash deficits and perhaps of a
    considerable magnitude,” he said.”

    Modern Monetary Theory in Canada

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