Free-spend­ing Lib­er­als pose risk for Scheer

Deficit makes it tough to cre­ate a rosy plat­form

Calgary Herald - - CANADA - JOHN IVI­SON Na­tional Post jivi­[email protected]­media.com Twit­ter.com/Ivi­sonJ

An­drew Scheer’s schaden­freude is show­ing. You don’t need to speak Ger­man to un­der­stand the ma­li­cious plea­sure the of­fi­cial Op­po­si­tion leader is tak­ing from the mis­for­tunes suf­fered by the Trudeau govern­ment.

The prob­lem is the govern­ment’s fis­cal prob­lems could boomerang back on him, as he gears up for next year’s elec­tion.

In ques­tion pe­riod on Wednes­day, Scheer pointed out the prime min­is­ter had promised to bal­ance the bud­get next year, but that a new re­port by the Par­lia­men­tary Bud­get Of­fi­cer fore­cast deficits much higher than the govern­ment’s own num­bers made pub­lic just last month.

The re­port is in­deed dev­as­tat­ing, if you care about pru­dent ste­ward­ship of the na­tion’s fi­nances. But there have been few signs in the past three years that it’s an is­sue that keeps the prime min­is­ter, or his fi­nance min­is­ter, awake at night. No won­der Justin Trudeau has been so en­thu­si­as­tic about young peo­ple — they are the gen­er­a­tion who will pay off the debts he is ac­cu­mu­lat­ing.

It was just three weeks ago that Bill Morneau un­veiled a fall state­ment that es­ti­mated the deficit would be $19.6 bil­lion in 2019-20, the elec­tion year in which the bud­get was sup­posed to be balanced (a pledge the govern­ment now ad­mits is “fac­ing chal­lenges”).

Morneau claimed his plan was “fis­cally re­spon­si­ble,” even though it pro­jected the na­tional debt would reach $767 bil­lion in 2023-24 — a num­ber 20 per cent higher than the $617 bil­lion owed in Stephen Harper’s last year in of­fice.

The econ­omy has per­formed well by a num­ber of in­di­ca­tors — the unem­ploy­ment rate is at a 40-year low, even if wage growth now trails in­fla­tion.

But Morneau was strangely san­guine about the prospect of a re­ces­sion that is al­ready over­due by his­tor­i­cal stan­dards.

Bal­anc­ing the bud­get is just a ques­tion of tim­ing, he said, as rev­enues grow more quickly than ex­penses.

But while many of the en­sem­ble cast of cab­i­net min­is­ters be­have as if they were char­ac­ters in the feel-good movie Love Ac­tu­ally, there is ev­ery chance there will be no happy end­ing to the fis­cal plot.

The deputy di­rec­tor of the In­ter­na­tional Mone­tary Fund, David Lip­ton, warned this week that an­other global re­ces­sion is on the hori­zon and said fi­nan­cial in­sti­tu­tions are woe­fully un­pre­pared. Morneau’s re­sponse to ques­tions about loom­ing clouds is that he has “found the ap­pro­pri­ate bal­ance” be­tween fis­cal pru­dence and spend­ing.

It seems the new Par­lia­men­tary Bud­get Of­fi­cer, Yves Giroux, dis­agrees.

His of­fice es­ti­mated this week that over the next five years, deficits will be on av­er­age $8 bil­lion higher than the num­bers Morneau re­vealed three weeks ago.

The dis­crep­an­cies are at­trib­ut­able to lower in­come tax and GST rev­enues, as well as higher op­er­at­ing ex­penses. The PBO said there was also “down­side risk” at­trib­ut­able to lower oil prices.

But Morneau does not believe in ad­just­ing for down­side risk, es­pe­cially not in an elec­tion year.

It is en­tirely pos­si­ble the PBO’s cal­cu­la­tions are too pes­simistic and Morneau is right in think­ing we do in­deed live in the best of all pos­si­ble worlds.

But the Con­ser­va­tives sense there is an anx­i­ety in the coun­try — that vot­ers are ner­vous about what Scheer char­ac­ter­ized as “tem­po­rary and tiny deficits” bal­loon­ing into “mas­sive and per­ma­nent” bud­getary short­falls that will have to be paid off by the next gen­er­a­tion.

The Con­ser­va­tive leader got per­sonal in the House of Com­mons when he said Trudeau had never had to worry about money, so was pre­pared to rack up “reck­less deficits.”

But, he said, “the fed­eral bud­get is not a trust fund.”

There are signs the con­stant drip of ques­tions about deficits is start­ing to sink in with vot­ers.

The most re­cent Nanos Re­search track­ing poll sug­gests the Lib­er­als have fallen five points in re­cent weeks and are once again run­ning neck and neck with the Con­ser­va­tives.

Trudeau’s per­sonal num­bers are near 12-month lows. (One in­ter­est­ing aside is that the NDP’s Jag­meet Singh is now trail­ing the Greens’ Eliz­a­beth May when Nanos asked vot­ers about their pre­ferred prime min­is­ter, and the Greens have risen to their high­est point this year when re­spon­dents are asked which party they would con­sider vot­ing for. Will 2019 be the year the Green Party fi­nally comes into full bloom?)

While this is all good news for the Op­po­si­tion, it cre­ates its own com­pli­ca­tions.

The rosy fis­cal pic­ture painted by the fall state­ment pre­dicted deficits tick­ing down­ward to “just” $11.4 bil­lion five years from now. But that fore­cast re­lied on the Lib­er­als en­act­ing spend­ing cuts in real terms — a re­duc­tion in di­rect pro­gram ex­penses as a per­cent­age of GDP from 6.7 per cent to 6 per cent over the next five years.

If the PBO’s fore­casts are right — that aus­ter­ity pro­gram will have to be much more se­vere.

The Lib­er­als were lib­er­ated from fis­cal or­tho­doxy in 2015 — they took the coun­try back into deficit de­lib­er­ately in the name of spurring growth. It al­lowed them to spend bil­lions more than the Con­ser­va­tives and the NDP, both of whom had pledged to bal­ance the books.

The same logic holds true to­day. The Lib­er­als and their sup­port­ers care lit­tle about deficits, be­yond the com­mit­ment to keep the debt-to-GDP ra­tio on a down­ward track (and given the ease with which other prom­ises were dis­carded, who could have any faith in this one be­ing iron-clad?)

But Scheer is now obliged to fash­ion an elec­tion plat­form based on a fis­cal pic­ture that has just got $8 bil­lion more gloomy. By ac­knowl­edg­ing the le­git­i­macy of the PBO num­bers, Scheer has to bud­get ac­cord­ingly.

If there is any truth in po­lit­i­cal ad­ver­tis­ing, the Con­ser­va­tive elec­tion slo­gan will be: “Vote for us and we’ll slash $25 bil­lion from your pub­lic ser­vices.”

Not quite in the same league as: “They Can’t Lick Our Dick — Vote Nixon” but one might imag­ine sim­i­larly dis­taste­ful to vot­ers.

THE RE­PORT IS IN­DEED DEV­AS­TAT­ING, IF YOU CARE ABOUT PRU­DENT STE­WARD­SHIP OF THE NA­TION’S FI­NANCES. BUT THERE HAVE BEEN FEW SIGNS IN THE PAST THREE YEARS THAT IT’S AN IS­SUE THAT KEEPS THE PRIME MIN­IS­TER, OR HIS FI­NANCE MIN­IS­TER, AWAKE AT NIGHT.

An­drew Scheer

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