Liberals launch the ‘not-our-fault’ defence
With the budget just four weeks away, it is unclear why the finance minister felt compelled to scoop himself with Monday’s economic statement. That is to say, it is perfectly clear.
Given the pounding he has been taking in the Commons in recent days, Bill Morneau could hardly have been looking forward to weeks more of the same treatment: the opposition demanding to know daily whether the deficit would be more than $30 billion, less than $30 billion, knowing he could not answer but every day drilling the same message deeper into the public’s cranium: the Liberals promised a deficit of $10 billion, but delivered a deficit three times as large. By the time it got to budget day, whatever explanation or nuance the minister might have liked to attach to that figure would have been lost.
So the decision was taken — in some haste, it appears — to break the news in two stages. Monday’s statement, with its revised projections for economic growth, revenues, spending and the deficit, was the “it’s- notour-fault” stage. With the economy growing much slower than expected even as late as last November’s economic update, revenues are off sharply, meaning the deficit for the coming fiscal year is now projected to be much larger than anyone had hitherto foreseen: not the $ 3.9 billion f orecast in November, still less the small surplus projected in last April’s budget, but $ 18.4 billion.
For all the gasping and spluttering this is likely to cause, the Liberals can say the deficit would have been this size no matter who was in power — for this is the projection in advance of the
Liberals’ promised $ 10- billion “stimulus” package, the details of which are to be spelled out in the budget. By then, the Liberals calculate, the first $ 18 billion will have been priced into public reaction. What’s another $ 10- billion on top of that?
Fair enough — up to a point. There’s reason to doubt how much of that $ 18 billion is really due to factors beyond the Liberals’ control, or even whether it is really $ 18 billion. Even in advance of the stimulus package, spending is now on track to exceed what was projected in the budget by $4 billion. And while the sudden $ 12- billion drop in revenues since l ast November may be real, it’s also hard to explain.
While growth is indeed off — the continuing effects of the turmoil in world e nerg y markets — t he sharpest shortfall from previous projections, according to the statement, is in the fourth quarter of 2015 and first quarter of 2016: that is, in the 2015-16 fiscal year. Yet revenues for that year have been revised up by $ 2.6 billion. Meanwhile, revenues in 2016-17, when growth is projected to be more or less on track with previous forecasts, are supposed to drop like a stone.
Perhaps the i mpact of slower growth only makes itself felt on revenues with a lag. But if that’s the case, it makes it harder to explain how the government is able to show a deficit for 201516, the year just ending — a contentious issue, since the Conservatives were in charge for much of it. The statement puts the deficit in that year at $ 2.3 billion, down slightly from the $ 3.0 billion forecast in November. But Finance’s Fiscal Monitor, also released Monday, shows the budget was in surplus through the first nine months of the year, to the tune of $ 3.2 billion. Even allowing for the usual year- end revisions, that is difficult to square.
And there is the l i ttle matter of the fudge factor. While the government’s es- timates of GDP, following established practice, are taken from a consensus of private forecasters, Finance has arbitrarily lopped $ 40 billion off the forecast for each year for planning purposes — at least twice as much as in previous years — taking nearly $ 6 billion off projected revenues in the process. So the deficit could come in as little as $ 12 billion.
Well, who cares. Whether the deficit is $ 12 billion, or $ 15 billion or $ 18 billion, it’s all much the same: between 0.6 per cent and 0.9 per cent of GDP. True, it’s larger than the $ 10 billion promised.
And true, it’s unlikely to be brought back into bal- ance by 2019- 20, as also promised. And true, with the economy growing as slowly as it is, it also means the debt- to- GDP ratio is set to increase, blowing through the last of the Liberals’ promised benchmarks of fiscal discipline.
But hey, it’ s not their fault. They didn’t cause the worldwide oil- price collapse. ( Of course, neither did the Tories. But that’s another story.) Just so. The issue is not why the deficit is now $ 18 billion, but why t he Liberals propose to push it to $ 30 billion.
The talking point in every Liberal mouth was that this promise—to splash out billions of dollars in every direction, only a fraction of it for infrastructure even on the Liberals’ ludicrously open- ended definition — represents a bold “new approach” to economic policy. ( Also a “new course,” a “new direction,” and a “new plan.”)
I grant t hat it is not found in most economics textbooks, where the notion of treating a supply shock like a collapse in oil prices with demand stimulus would be treated with some derision.
But if papering the country with borrowed money is new, then Sir John A. is still in power and Mackenzie King is not yet born. Welcome to Canada, where it is always 1873.
THERE IS THE LITTLE MATTER
OF THE FUDGE FACTOR.