COYNE: FIGHTING OVER SPENDING A SURPLUS
Government: At least fi ghting over how to spend a surplus beats fi ghting over how to cut a defi cit
Spending remains higher, measured in real dollars per capita, than under any previous government in our history.
Don’t look now, but the federal deficit is about to disappear. It was already more or less a non- issue, at less than one per cent of GDP, but even that has proved — surprise! — to be an overstatement.
The deficit for fiscal 2014, the government has lately admitted, came in at just over $ 5 billion, less than a third what it was projected to be in last spring’s budget. For the current fiscal year the TD Bank projects not the $ 3- billion deficit the government claimed but a modest surplus, on the order of $ 5 billion, with larger surpluses in out years.
The same old, same old, in other words. I suppose it’s progress, from a fiscal conservative perspective, that governments no longer hide their deficits, as they did in the bad old days, but rather go to similarly elaborate lengths to hide their surpluses, a practice perfected during Paul Martin’s long reign as finance minister. And it’s certainly to the current government’s credit that the deficit, which it created — needlessly, except to save its own skin — has been eliminated, six years and $ 150 billion in added debt later. But the democratic thing to do now is to fess up, and let the public in on the discussion about what to do next.
I understand why they might be reluctant to do so. Conservatives have been too willing to let the deficit do their dirty work, crying that we can’t afford it to make the case against illjudged new spending schemes ( when they were not proposing them themselves) rather than grounding their arguments in first principles: that is, in what is and is not the appropriate role of government in a market economy. Once the deficit tether is removed, there’s a danger the debate will float away from them.
Still, the scenario is not all that rosy. Once, the economy might have been assumed to impart a relentless momentum toward ever- larger surpluses: left to themselves, revenues would tend to grow rather faster than spending, as if the former were tied to growth in the economy while the latter were not. It in fact required quite large discretionary increases in spending to keep pace — which is why it is wrong to measure spending relative to GDP ( thereby to conclude that because it has not grown quite as fast as the economy, spending has fallen.)
But in the years and decades to come, the economy is likely to grow rather slower than would have been the case in the past. As the massive baby boom cohort reaches and passes retirement age, the labour force will first shrink, then resume growing, but at a much slower pace than before. At the same time, the costs of looking after the growing ranks of the elderly, notably for health care, are set to explode. That’s mostly a problem for the provinces, but the revenue constraint will affect all governments.
So some caution is in order before we decide to splurge. Even after the restraint of the last few years, federal program spending remains higher, measured in real dollars per capita, than under any previous government in our history. And the potential claimants for surplus dollars are many, and voracious. Certainly the government should resist the demands of those most voracious of all claimants, the provinces. Their predicament is deep and long- term — on a business- as- usual basis, there are serious forecasts that one or more of them will default in the next 30 years — and will require radical reforms in program financing and delivery, not short- term cash infusions.
Neither is there any pressing need to put more than a token amount to paying down the debt. Finance Minister Joe Oliver is right: to ensure the debt- to- GDP ratio, now at 32 per cent, continues to fall — a sound objective, giving us the fiscal breathing room to deal with future challenges, foreseen or otherwise — it is enough to keep the budget in balance: holding the numerator constant, as it were, while the denominator, the economy, grows.
The government’s proposed balanced budget law can help there: not because there is any special significance to annual budgets, or any great harm if a government runs a deficit here and there, but as an anchor, to prevent us from straying too far out of balance too often. It’s no substitute for political will — a government that was truly bent on running deficits would just change the law — but like all laws, it can help to shape political will.
That leaves a choice between cutting taxes, as the government will shortly propose, and raising spending, as the opposition parties will doubtless prefer. ( Always remembering that any projected surpluses embody current and planned Conservative spending reductions — the opposition can only promise to spend the former if they accept the latter.) In principle, the choice should be straightforward enough: pick the one that offers the greater social and economic benefits, at the margin, relative to its costs. In practice, these are almost impossible to measure, at least to everyone’s satisfaction.
Fortunately, there’s a way out of this dilemma. Whatever the government’s efforts at restraint, much of what it spends is still needless and counter- productive — subsidies to business foremost.
Likewise on the tax side: there remain many deductions and credits that are not only costly to the treasury, but distort investment decisions. How much less stark our choices would seem if we could agree, as a starting point, that any new spending should be funded out of cuts in existing spending, and any tax cuts funded by eliminating tax preferences.
I know, I know: fat chance. Fine. Let’s have a big, messy, mostly pointless fight over how to divide the surplus. It beats fighting over how to reduce the deficit.