National Post

Coyne on the deficit danger.

- Andrew Coyne

The choice the government would like you to take away f rom this Fall Economic Statement is as follows: between the Liberals, who plan to put billions more into help for needy children and the working poor, and the Conservati­ves, who remain obsessed with balancing the budget even as deficits come in under forecast and the debt-to- GDP ratio declines.

Put like that, the Liberals can’t lose. The boost in the Canada Child Benefit and the Working Income Tax Benefit are among the very best expenditur­es a government could make, from any number of perspectiv­es — because they are aimed at the poorest among us, because they help to promote workforce participat­ion and because in the former case the money simply covers the cost of indexing for inflation, which is no more than to maintain the real value of the benefit at the level Parliament voted for in the first place.

As for the deficit, while it is true the numbers are higher than the $ 10 billion (tops!) the Liberals promised in the last election — even if they are less than projected in the last budget — they are, by most of the usual yardsticks, trivial. It is difficult to get worked up about deficits averaging less than $ 17 billion on an economy averaging roughly $ 2.3 trillion, even if it means the Liberals have also broken their promise to balance the budget after four years. It’s bad behaviour, certainly, but it will not ruin us.

It is the notion that there must inevitably be a choice between the two — that we can either put more money into alleviatin­g poverty or balance the budget — that is the sleight of hand in the Liberal scenario. The fiscal statement may commit to spending another $ 2 billion or so annually on the CCB and WITB, but there is plenty of other spending in the federal government’s $ 305- billion annual budget that could be cut, or at least not increased.

It is, indeed, only because spending has risen as fast as it has that we have a deficit at all — and it is only because revenues have risen as fast as they have that it is not larger than it is. The story the Liberals liked to put about after they were elected was that it was not so much their own spending increases as an unexpected shortfall of revenues that explained why the deficit was so much larger than they had promised. But in fact revenues, after a brief dip last year, have rebounded to almost exactly the same level as projected in the l ast Conservati­ve budget: $310.7 billion, in the current fiscal year, vs. $313.3 billion. Yet instead of the small surplus the Tories projected, the statement shows a deficit of $20 billion. Why? Because the Liberals will spend $ 22 billion more this year than the Tories had pencilled in — and $ 50 billion more than the Tories actually spent in their last full year.

It is entirely possible that in all this blizzard of new spending — now at its highest level, after inflation and population growth, in our history — the odd dollar or billion might have gone astray. But it is spending, rather than the deficit, that is the issue; while the level of spending, likewise, is distressin­g, it is more because it is composed of so much misspendin­g than because of the overall burden it represents.

This i s an unwelcome message for Conservati­ves, who have grown too used to letting the deficit do their dirty work for them. It was so much easier, after all, to say of a popular but needless program that “we can’t afford it,” rather than criticize it on its merits, as a silly waste of money. It was easy, that is, so long as deficits were truly monstrous — when they were six per cent of GDP, rather than 0.6 per cent — and the public duly frightened. But now that neither seems to apply, they will need to find a new message.

That doesn’t mean deficits are irrelevant. We do not go to hell if we fail to balance the budget in a given year, but the requiremen­t does impose a needed discipline on spending — on the quality, as much as the quantity. If you have to choose between A and B you’re likely to subject both to far more scrutiny than if you’re told you can have both A and B.

And while the deficit and debt do not look like serious threats now — the debt- toGDP ratio is to fall to 30.5 per cent this year, its lowest level since before the financial crisis and the thirdl owest i t has been since 1982 — that does not mean they could not become so in future. We are still running deficits even after a year in which the economy grew 5.5 per cent in nominal terms — and nearly 10 years after the last recession.

But there are storm clouds gathering: the possible collapse of NAFTA talks, the pipelines logjam, the cumulative impact of new regulation­s in the labour market and the still-precarious state of the housing market, especially in the face of a probable rise in interest rates. It doesn’t take much to change a virtuous debt cycle into a vicious one.

And of course the federal deficit is only part of the picture: the provinces collective­ly are running much larger deficits, and will bear most of the costs of population aging, largely for health care, in the long term. We should be running surpluses in these relatively good times, to guard against the day when we will have no choice but to run deficits. That is what is so troubling about our current deficits: they are deficits of choice, not of necessity.

That may be the best way to measure their size: not relative to what was promised, or what was forecast, but relative to the surpluses they should be. It is not necessary to jettison aid to the poor to close that gap. It is enough to jettison aid to the wasteful.

 ?? ADRIAN WYLD / THE CANADIAN PRESS ?? Finance Minister Bill Morneau, left, is applauded by fellow Liberals as he delivers his fall economic statement.
ADRIAN WYLD / THE CANADIAN PRESS Finance Minister Bill Morneau, left, is applauded by fellow Liberals as he delivers his fall economic statement.
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