Free-spending Liberals pose risk for Scheer
Deficit makes it tough to create a rosy platform
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.