Financial forecasts are useless
Fellow Canadians were no doubt as gratified as I to learn that federal deficits could end sooner than previously forecast. Given the right conditions, Ottawa could find itself with a balanced budget as early as 204546, five years earlier than anticipated.
This is good news. Pierre Trudeau launched the decades- long borrowing spree in the late 1960s, when I was a teenager. With luck, we could return to balance again when I’m barely into my 90s. Kind of gives you something to live for, eh?
The projection comes with a caveat, naturally. It requires the right circumstances, i.e. decades of stable conditions, free of startling or unexpected events. That’s a tall order, given that, in the history of the world, there’s seldom if ever been a quarter- century unbroken by surprise events.
The fact this year’s prediction shaves five years from last year’s demonstrates its uncertain chances of survival. Given the general lack of stability that marks current international political and financial activities, this year’s Finance Department projection will be lucky to get much past New Year without being overtaken by events. A whole set of new policies are set to take effect — from the last tatters of Finance Minister Bill Morneau’s attempted small business tax reform, to tougher new mortgage rules for homebuyers, to Ontario’s new $15 minimum wage and the potentially enormous ramifications of the sweeping tax plan approved by the U. S. Congress.
Analysts have done their best to sort out how all this might impact Canada’s economy, but projections are just projections, and, in any case, Canada’s provincial and federal leaders aren’t famed for their skill at preparing to deal with the unexpected.
They prefer, instead, to pretend bad things won’t happen. Prime Minister Justin Trudeau’s campaign platform in 2015 consisted of hundreds of promises requiring billions of dollars in spending — far more billions than Ottawa could expect to collect. The easy solution was to increase borrowing, which he vowed to do. Once in office, he borrowed even more than expected, forcing Morneau into a steady retreat from the various fiscal measures he had pledged to meet. Whatever parameters he is currently defending could change just as easily, should circumstances require.
The provinces take a similar oleaginous approach. Alberta’s NDP government, facing a strong, organized opposition for the first time since taking office, took advantage of the Christmas season to approve another $ 37 billion in borrowing, including $5 billion for a “cash reserve” for emergencies. You have to give New Democrats credit for innovation: previously willing to borrow even for day- today services, now they’re going into hock for money they might not even need, just in case something comes up.
It’s an approach Ontario might keep an eye on. The province is so dangerously in debt its own monitoring agencies regularly warn about the heady risks involved, only to be ignored by the Liberal government. Finance Minister Charles Sousa continues to claim to have balanced the budget after 15 years of frantic borrowing, a fantasy achieved by shifting new debt to off-budget agencies like the provincial power utility, and pretending it isn’t all one big cash liability Ontarians will be stuck with for generations.
British Columbia’s newish premier, John Horgan, discovered the sort of quandary governments find themselves in when they plow ahead on the spending front without wasting undue attention on where the money’s from. Horgan was stuck with the unpleasant task of announcing that his New Democrats, after years of railing against the giant Site C dam project in northeastern B.C., would go ahead with the project despite themselves, solely because it would cost too much to stop.
Horgan made no secret of his regret with his decision. His own wife disagreed with it, he said, as did many left-wing colleagues and allies. But it was an issue of pragmatism over ideology — something that only happens when politicians leave the safety of opposition benches and actually find themselves responsible for something. To cancel the project would have meant absorbing $4 billion in debt “with nothing to show for it,” and blocked Horgan’s government from spending even more on other agenda items.
Though he blamed the mess on the previous Liberal government, it came down to the same old issue: governments determined to spend money on new, favoured programs, running up against the barrier of debt amassed by previous governments driven by the same compulsion to spend.
Ontario faces that problem in spades; Premier Kathleen Wynne’s Liberals hope only to get through this June’s election before they start borrowing again with both hands. In Ottawa, Morneau’s disastrous tax reform attempt was driven by his desperate need for “new revenues,” having already blown so far past previous pledges of fiscal rectitude. And Alberta’s Premier Rachel Notley is well aware of the unease her budget policies have caused among Albertans, but her NDP is already too far along to turn back now. It’s borrow and hope, borrow and hope.
That’s the way Canada does things, and it’s why government financial forecasts that project more than an hour or two into the future aren’t worth the time it takes to write them.
THEY PREFER TO PRETEND BAD THINGS WON’T HAPPEN.