Are there any limits on spending?

The public has suspended critical judgment about how much money should be spent to support people and businesses ravaged by the economic closure caused by COVID- 19. The federal government, freed from any constraint, is doling out cash at breakneck speed in eye- watering amounts, with no indication so far about what will happen when, starting very soon, the bill comes due.

Parliamentary Budget Officer Yves Giroux predicts the federal deficit will be $ 252 billion, on top of the $ 100 billion the government managed to accumulate in five years of extravagance before the pandemic. Furthermore, his report states, “after support measures are provided, fiscal stimulus measures may be required to ensure that the economy reaches lift- off speed, especially if consumer and business behaviour does not quickly revert back to ‘ normal’ conditions.” In other words, expect even more spending, perhaps a lot more.

We can all agree that the government needed to act quickly and decisively to avert a financial calamity. It was morally obliged to support people it told not to work and businesses it forced to close down. Relief had to be considerable, but that does not mean it can be limitless.

Even if every loonie spent can be justified, over a quarter of a trillion dollars is a frightening amount of debt to incur in just a few months — especially when there is every likelihood future deficits will continue for as far as the eye can see. After all, Department of Finance projections envisaged decades of deficits even before COVID- 19 shuttered the economy.

This year’s budget deficit will represent 12.7 per cent of the Canadian economy, its highest value since 1945. Combined with sharply lower economic growth, it will raise the federal debt- toGDP ratio to 48.4 per cent this year, up from 34 per cent, which was the standard against which Finance Minister Bill Morneau wanted his government’s fiscal performance to be judged.

But that is just federal debt. Adding the provinces makes for a mind- numbing number — $ 1.5 trillion or almost $ 40,000 for every Canadian ($46,000 for Ontarians) and a federal/provincial debtto- GDP of 64 per cent, with more likely coming.

Talk of billions and trillions makes most people’s eyes glaze over. But it hits home when they understand that annual interest payments on the national debt work out to $850 per person or $3,400 for a family of four, even before the new debt is added. As with credit card interest, though we get nothing in return for these payments we still have to make them.

The government’s many substantial revisions to the emergency programs reflect a panicky response to urgent demands. It did not engage in broad consultation, whether with opposition parties or outside experts. Seeking outside advice would have enhanced democracy and reduced uncertainty without appreciably delaying decisions. Inevitably, some programs will have unintended consequences and invite illegal or unscrupulous behaviour. Stories already abound of small companies borrowing $ 40,000 interest- free through the Canada Business Emergency Account and investing it in a GIC, with the intention of paying back $ 30,000 in December 2022. That obviously was not the intent of the program but it is perfectly legal.

With health risk still an overwhelming concern, 60 per cent of Canadians support even further expenditures, according to a recent Nanos poll. Yet only nine per cent want to pay higher personal taxes. That encapsulates a problem all political parties encounter in democracies around the world, especially conservatives who support fiscal prudence during periods of economic growth. Voters are generally happy to receive government largesse in the form of social services, targeted tax breaks, money for local projects and, especially, cash handouts. Not surprisingly, they are less enthusiastic about paying the piper. Many seem to believe that somehow they will never have to. But if public debt accumulates dramatically, few of us will escape its impact.

When the immediate health crisis finally ends, fear will be replaced by relief, and attention will turn to the financial implications. Politicians will debate whether the hundreds of billions were well spent and how the debt burden will be shared. What won’t be debated is that it will be huge and that a plan will be needed to deal with the carnage left in its wake.

How the government handles that challenge will reflect its priorities. If past is prologue, we have cause to worry that this government’s focus will be more on social programs and less on economic growth, employment and fiscal responsibility and that hostile policies will continue to devastate the energy industry. That would make for a bleak future, including for the most disadvantaged. Very soon, political leaders from every party will need to tell Canadians about their vision and plans for economic recovery.

revisions to the emergency programs reflect a panicky response to urgent demands.