Trudeau’s budget challenge

The Liberal budget on March 22 is projected to include an $18.4-billion shortfall, which could surpass $ 25 billion when additional “stimulative” expenditures are included. Having taken office less than four months ago, Prime Minister Justin Trudeau can justifiably argue his government is responding to conditions not of its making. To a considerable degree, the March document will be the last Harper budget. The question is whether it will be a harbinger of big deficits to come.

Government budgets are vast, unwieldy things. They are not written in a month or two, nor scribbled on the back of a napkin, and do not respond quickly to even the best-intentioned commands. The Trudeau government has spent much of its early time in office getting itself sorted out administratively. In that time the economic situation it faces has deteriorated significantly.

To be sure, the Liberals may manage to make it worse. During the election, Trudeau promised an enormous amount of new spending with shockingly little evidence of serious thought about how to deliver. Canadians were offered blithe assurances of huge benefits and economic stimulus that would pay for itself. If that was never very likely, it is even less so now.

Trudeau is no more responsible than former prime minister Stephen Harper for the dramatic fall in the price of oil. But both are guilty of budgeting as though no such thing could happen. The Liberals made the additional mistake of campaigning on the notion that they could easily put right an economy that was being badly mishandled, only to spend their early weeks backtracking, jettisoning promises and struggling to redefine the measures for success. Before even delivering his first budget, Finance Minister Bill Morneau has blown through his $ 10 billion deficit cap, begun fudging the pledge of a balanced budget within four years and redefined hard promises as “goals” or aspirations.

What, then, is to be done? In the short run, not much can be. The Tories ran “stimulative” deficits that happened to facilitate voter- friendly handouts for eight years instead of fixing the roof while the sun was shining, producing a fictitious election-year surplus and handing the Liberals a big hole and no shovel.

In such a situation, more bureaucracy seems an unlikely answer. Yet Morneau has created a new Advisory Council on Economic Growth to make suggestions on improving productivity and appointed respected private sector consultant Dominic Barton to chair it. Though committees come and go, this one has the potential to be more than the empty feel-good gesture it may appear.

A third of a century ago, faced with deep structural deficits, another prime minister named Trudeau appointed a Royal Commission to investigate deep- seated issues troubling the country at the time. The Macdonald Commission, headed by former finance minister Donald Macdonald, avoided getting bogged down in short- term policy development and instead called for major reforms to remove artificial impediments to growth. By the time it reported, the Liberals had lost to Brian Mulroney’s Progressive Conservatives, who took the recommendations to heart, and to very good effect. The Barton council has the opportunity to serve a similar purpose if it chooses to avoid seeking out quick fixes and takes a long- term, “big picture” look at nagging structural problems, from agricultural supply management to an overly complex tax system to fiscal federalism that undermines accountability and punishes productivity. Like the Macdonald commission, it would best serve the country by mapping out a genuinely bold plan to remove government impediments to growth.

If the Trudeau Liberals want to avoid being confronted by soaring deficits that force them into stringent cost- cutting in some future budget, they will need to generate a great deal more revenue. If they wish to avoid painful tax hikes, they will need a lot more productivity. Runaway government “stimulus” is not the answer; the real solution is to remove the barriers that act to obstruct growth. Recognizing this, and having the nerve to act, will be the key to avoiding another long dismal run of uncontrollable deficits.

RUNAWAY GOVERNMENT ‘STIMULUS’ IS NOT THE ANSWER; THE REAL SOLUTION IS TO REMOVE THE BARRIERS THAT ACT TO OBSTRUCT GROWTH.