National Post (Latest Edition)

Pre­pare for the in­evitable han­gover

It won’t take much for ‘fed­eral debt to be­come un­sus­tain­able’

- John Ivison Finance · Canada News · Politics · Business · New Democratic Party (Canada) · Democratic Party (United States) · Paul Martin · British House of Commons · Chrystia Freeland · Jagmeet Singh · Peter Julian · Jack Layton · Canadian House of Commons

It is be­com­ing te­dious to keep warn­ing that we’ll pay for the govern­ment’s im­prov­i­dence, like a joy­less man of the cloth ad­mon­ish­ing his flock for their self-in­dul­gence.

An anx­ious elec­torate has in­di­cated broad sup­port for re­newed in­come ben­e­fits and paid sick leave, which is un­der­stand­able as the se­cond COVID-19 wave washes in. The lat­est weekly sur­vey by Leger sug­gests 52 per cent of Cana­di­ans believe the plan pre­sented in the throne speech will strengthen the econ­omy.

“Th­ese are things we can’t af­ford not to do,” said Fi­nance Min­is­ter Chrys­tia Free­land – the stan­dard ex­pla­na­tion from politi­cians about to spend other peo­ple’s money.

Calls for cir­cum­spec­tion are deemed to lack sym­pa­thy and com­pas­sion. And then there are low debt ser­vic­ing costs, which are guar­an­teed to re­main below 10 per cent of tax rev­enues un­til the end of time, or so we’re as­sured.

A new re­port by the Par­lia­men­tary Bud­get Of­fice will doubt­less be wheeled out in sup­port of this world­view. The PBO as­sumes that the pan­demic, and ac­com­pa­ny­ing public health mea­sures, will be with us for another 12-18 months. But cru­cially, it also as­sumes the spend­ing will be with­drawn at the end of this fis­cal year.

The PBO’S model ex­pects a bud­getary deficit of $328.5 bil­lion, or 15 per cent of GDP, in 2020/21, which takes into ac­count the ex­ten­sion of the Canada Re­cov­ery Ben­e­fit but not mea­sures an­nounced in last week’s throne speech. That num­ber is lower than the $343 bil­lion, the govern­ment in­di­cated in its sum­mer fis­cal snap­shot.

The pro­jec­tion an­tic­i­pates a deficit of $ 73.8 bil­lion in 2021/22, with the bud­getary short­fall re­vert­ing to more typ­i­cal lev­els by the mid­dle of the decade.

Yves Giroux, the Par­lia­men­tary Bud­get Of­fi­cer, said that fed­eral govern­ment’s fi­nances at this level are sus­tain­able, “but, really, barely.”

“It wouldn’ t take that much in terms of new spend­ing, or even tax cuts, for fed­eral debt to be­come un­sus­tain­able,” he said.

The con­cern for those of us who look for­ward with trep­i­da­tion is that our par­lia­men­tar­i­ans seem in­tent on ex­tend­ing tem­po­rary mea­sures in per­pe­tu­ity. In that cir­cum­stance, re­duc­ing the deficit to a “mere” $ 74 bil­lion next year would be­come im­pos­si­ble.

The Lib­er­als have signed a Faus­tian pact with the NDP that they seem in­tent on hon­our­ing un­til they have a large enough lead in the polls, at which point the New Democrats will be cut loose and pa­tron­ized as be­ing er­ratic and un­re­li­able.

Re­mark­ably, the NDP seem fine with this.

Jag­meet Singh, the party’s leader, told the Huff­in­g­ton Post’s Althia Raj that his goal is to use his abil­ity to tip the bal­ance of the power in Par­lia­ment to push mea­sures that “sup­port peo­ple” — a plan that could see him back­ing the Trudeau govern­ment for another three years.

The party’s na­tional di­rec­tor, Anne Mc­grath, told the Na­tional Post fu­ture ne­go­ti­a­tions will be aimed at mak­ing their gains per­ma­nent. “There are things that should ex­ist dur­ing a pan­demic, but also not dur­ing a pan­demic,” she said.

Peter Ju­lian, the NDP MP, said his party aims to use its in­flu­ence to press the Lib­er­als to cre­ate a wealth tax — which shouldn’t take too much arm- twist­ing, given the throne speech in­cluded a com­mit­ment to “iden­tify ad­di­tional ways to tax ex­treme wealth in­equal­ity.”

Canada is cur­rently be­ing run, for bet­ter or worse, by an in­for­mal so­cial demo­cratic coali­tion, com­mit­ted to in­come re­dis­tri­bu­tion, reg­u­la­tion of the econ­omy and gen­er­ous so­cial wel­fare pro­vi­sion. It is be­com­ing im­pos­si­ble to look at the Lib­er­als and NDP and say which is which.

History sug­gests it is an in­ti­macy that car­ries elec­toral risk for the NDP.

The party is lucky to have Mc­grath. She is a vet­eran of the Jack Lay­ton years and may be able to con­vince Singh when there is no longer elec­toral ad­van­tage to mov­ing in lock­step with the Lib­er­als.

Lay­ton with drew his sup­port from Paul Martin’s govern­ment in the fall of 2005, when the gains be­ing extracted no longer out­weighed the risk of as­sim­i­la­tion. In my opin­ion, they are al­ready beyond that in­flec­tion point but per­haps they can still ex­tract some credit from pro­gres­sive vot­ers.

Re­gard­less of the par­ti­san ma­noeu­vring, the fis­cal im­pli­ca­tions of the Lib­eral-ndp li­ai­son are unset­tling.

The CERB was meant to be re­placed by a less gen­er­ous pro­gram. Yet the Canada Re­cov­ery Ben­e­fit was en­riched to $500 a week as part of the price for the NDP’S sup­port in the House of Com­mons. That trans­lates to $ 26,000 a year, the equiv­a­lent of a min­i­mum wage job in most prov­inces.

The wage sub­sidy was re­designed to wind down, with less fund­ing avail­able over time. It will now run un­til next sum­mer, with no in­di­ca­tion that sup­port will be re­duced.

In all, the PBO iden­ti­fied $ 225.9 bil­lion in COVID re­lief mea­sures that were meant to be tem­po­rary. If they prove not to be, we are by the PBO’S def­i­ni­tion drift­ing to­ward un­sus­tain­abil­ity.

The coun­try re­mains in the grip of COVID but it is not too early to start pour­ing the black cof­fee that will be needed to mit­i­gate the in­evitable han­gover.

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