The NDP’s on-and-off affair with deficits
Throughout the federal election campaign, Tom Mulcair promised that his New Democrats would balance the budget no matter what.
Provincial NDP governments, he boasted, had a proven track record of fiscal probity. His would be equally tight-fisted.
Besides, Mulcair said then, deficits were just plain wrong. Borrowing money to cover government shortfalls, he said, contravened the principles of sustainable development by transferring today’s burden to future generations.
It was the new NDP orthodoxy and it didn’t work. Voters abandoned the New Democrats to vote instead for Justin Trudeau’s deficit-embracing Liberals.
Now Alberta’s NDP, under Premier Rachel Notley, is trying a different tack. In effect, Notley has embraced the approach that Mulcair so adamantly rejected.
Her government’s first budget, released Tuesday, calls for Alberta to deal with the devastating oil price collapse not by cutting public spending but by increasing it.
She has promised to spend more on health and education. She has even promised wage increases for teachers.
She will spend more on municipalities and more on transit. She will offer wage subsidies of up to $5,000 per worker to companies that hire new employees. She will increase spending on necessary infrastructure by $4.5 billion over five years. And to pay for it all, she will borrow.
The budget predicts that Alberta’s provincial deficit will total $6 billion this year alone and $18 billion over the next four years.
For Alberta, all of this is unusually bold. The province suffers from a boom and bust economy that soars and plummets with the price of oil. With that price now below $50 (U.S.) a barrel, the Alberta government’s revenue sources have dried up.
Regardless of who held power the province would face a fiscal problem. But the usual response of an Alberta government confronted with a revenue shortfall is to slash spending. Former Conservative premier Ralph Klein, for instance, famously cut health and welfare spending in the 1990s to balance his province’s books.
Jim Prentice, the Tory premier Notley replaced last spring, had planned to freeze overall spending and cut health care.
But the NDP premier has refused to take the austerity path.
Her approach is closer to that of Trudeau than Mulcair. Like the prime minister-designate, she argues that it makes sense to borrow money for necessary infrastructure projects now, when interest rates are at rock-bottom lows.
She has been advised in this by former Bank of Canada governor David Dodge, whose pro-deficit arguments were also used by the Trudeau Liberals.
Like Trudeau, she has taken the common-sense position that borrowing money to spend on, say, transit does not simply burden future generations with debt. It also provides them with usable assets.
None of this means that Notley is a wild-eyed radical. She is not. Her plan to run deficits now and balance the books later is a classic example of moderate Keynesian economics.
Even outgoing Conservative Prime Minister Stephen Harper subscribed to this view briefly, during the 2008 financial meltdown.
But she is certainly more radical than Mulcair’s federal NDP.
Will Notley’s embrace of deficitfinancing work politically in Alberta? Her federal cousins will be watching her progress carefully.
As former Ontario premier Bob Rae can attest, New Democratic governments that are deliberately casual about deficits don’t always fare well.
Back in 1990, his government took the reasonable view that it should fight what was then the worst recession since the 1930s rather than fret about deficits. The voters disagreed and by the time Rae had changed his mind, it was too late. In the subsequent election, his government went down in flames.
So we shall see how Notley does. The fact that she won power in Alberta has already made her an iconic figure within the NDP. If she can survive four years of deficits without embracing austerity, she may embolden those in her party who are uneasy with its relentless drift to the right. Thomas Walkom’s column appears Wednesday, Thursday and Saturday.