Balanced budget is likely bad economics, but good politics for Mulcair.
Tom Mulcair has made the deficit fetish his own.
The New Democratic Party leader has vowed that, no matter what happens, he will balance the federal budget if his party wins government.
Even Conservative Leader Stephen Harper hasn’t gone that far. He says governments may have to run deficits during recessions.
Coming at a time of a wobbly world economy and falling oil prices, Mulcair’s promise is almost certainly bad economics.
But for a party saddled with the (largely undeserved) reputation of wasting public money, it is probably good politics.
The reason Mulcair’s promise is bad economics is that deficits are sometimes necessary.
In times of recession, for example, efforts to balance government budgets by raising taxes or cutting spending can make matters worse.
The NDP understood this in late 2008 when, as part of an ill-fated coalition attempt, it said Ottawa should spend billions and endure at least four years of deficits in order to fight the worst economic slump since the 1930s.
Ultimately, Harper obliged. At the time, New Democrats didn’t complain about the massive deficits that the Conservative stimulus plan would entail. Rather, as Mulcair told the Commons in early 2009, the NDP worried that Harper would renege on the billions in spending that he promised.
Is Canada in a recession now? Experts differ, but Mulcair seems to think so. At least that was the impression he gave in a televised debate earlier this month.
But even if the country is not technically in recession, an ironclad commitment to balanced budgets can be counterproductive.
Governments have only two methods to steer a sluggish economy in the right direction. One is to have the central bank cut interest rates. The Bank of Canada has tried this.
But with interest rates close to zero, Bank of Canada governor Stephen Poloz is running out of room.
The other is to have Ottawa pump money into the economy, either by cutting taxes or spending more.
This is not a radical idea. Mainstream economists say that in this low-inflation environment, the government can run deficits without putting the economy at risk. Writing in the Globe and Mail, former deputy minister of finance Kevin Lynch argues Ottawa should borrow money to fund necessary infrastructure projects even if this results in deficits.
The NDP has already announced bold spending plans worth billions of dollars, ranging from daycare to health care. Given these commitments, it seems odd that the party would imprison itself in the balanced-budget straitjacket.
At least it seems odd until the politics are taken into account.
Politically, the NDP faces a stereotype problem. Voters tend to believe that New Democrats are overly casual with public money.
In fact, NDP provincial governments have pretty much the same fiscal record as those of other parties.
They try to nickel and dime public servants in order to keep costs down. They fret about credit ratings. Their finances get whacked when the overall economy turns south.
But New Democrats never get any fiscal respect. In Saskatchewan, former premier Allan Blakeney’s NDP government regularly balanced the budget. His Conservative successor rarely did. Yet when polled, Saskatchewan voters tended to view Blakeney as the spendthrift.
Mulcair’s aim is to break the stereotype.
Hence the hard-line position on deficits. The New Democrats are even using lines from Conservative attack ads to bolster their case.
Toronto NDP candidate Andrew Thomson, a former Saskatchewan finance minister, has taken to mocking Liberal Leader Justin Trudeau for saying that growth is more important than slavish attention to deficits and that, if the economy grows — and tax revenues grow with it — the budget will balance itself.
The odd thing is that, in this instance, Trudeau was right.
The odder thing is that the NDP used to take the same position. Thomas Walkom’s column appears Wednesday, Thursday and Saturday.