Liberals sound spending charge with rhetorical flourish
The Liberals call it “important investments in the future of Canada.” Their opponents claim it is reckless social spending the country can ill-afford.
What is beyond dispute is that the election promise of modest deficits is in tatters, as the government revealed it will spend, spend, spend well into the next decade.
Finance Minister Bill Morneau revealed Tuesday the red ink in the coming year will run to $29.4 billion, part of a cumulative $118.6 billion that will be added to the national debt over the next six fiscal years (including $5.4 billion in 2015-16, even though the country had a yearto-date surplus of $4.3 billion as of the end of January).
Morneau invoked lofty, almost Churchillian, rhetoric to explain why spending will increase 7.5 per cent next year, part of a $50-billion, six-year bonanza.
After the dark days of the Great Depression and the Second World War, Canadians believed the future could be brighter, he told the House of Commons in his budget speech. Canadians prospered as confidence inspired investment, and investment inspired confidence, he said. People are less optimistic today — but fortunately, the Liberals are now here to restore hope for the middle class.
Cue the trumpets. Their strategy is to boost something called “inclusive growth” through the use of “investments” like the $23-billion-a-year Canada Child Benefit. For the millions of Canadians who voted for the Liberals in the fall election, it’s a thing of beauty.
There’s no doubt those people will get what they voted for — with the exception of those throwaway electoral promises about limiting the size of deficits to $10 billion and returning the budget to balance by the end of the mandate.
But as that most lofty of all rhetoricians, Winston Churchill, once observed, however beautiful the strategy, it pays to occasionally look at the facts.
For one thing, we are not even in a recession, far less the Great Depression Morneau invoked.
As the budget confirms, the economy beyond the energy sector is largely stable: non-energy economic output is currently rising at an average of 2.2 per cent. Canada’s exports are showing signs of life, with all indicators pointing to increased investment by Canadian producers, after years of running at nearcapacity. Neither do we have a demand deficit that requires a boost in the form of government spending.
There is, it seems, no burning requirement to finance current spending from the wallets of future taxpayers.
The budget claims that the new spending will raise GDP by 0.5 per cent in the first year and one per cent in the second, translating into 100,000 jobs. But the intended effect was rather ruined by the admission that “some uncertainty and debate surrounds the size of fiscal multipliers.”
In other words, many economists don’t believe that government spending can spark economic growth at all — and those that do think the impact on a multitrillion-dollar economy is limited.
For such an activist budget, there are some smart targeted investments, such as the extension of employment insurance payments by five weeks for parts of the country where unemployment has increased by more than two percentage points, like Newfoundland and Alberta.
Kudos, too, for lifting the two per cent spending cap on aboriginal education. There will be $8.4 billion spent on Canada’s native population over five years, including $2.66 billion on primary and secondary education on reserves.
But overall this budget is a broken pipeline of federal tax dollars, gushing money to numerous pet Liberal causes.
Program spending as a percentage of GDP is set to rise from 12.9 per cent to 14.6 per cent next year. What we are seeing is the creation of a long-term structural deficit, not temporary cyclical investments.
Some of the palm-greasing is particularly egregious. “Aboriginal representative organizations” will receive $96 million over five years, which should mute any criticism of native policy in the coming years.
The Liberals will be hoping the same principle holds across the rest of the electorate when the cheques for the new Canada Child Benefit start landing.
Using the government’s own case studies, one can see why “Samantha,” a single parent earning $30,000, should receive $1,548 more every year. But when the government’s balance sheet is haemorrhaging red ink, why should “Ann and Derek,” with two children and a household income of $120,000 a year, get $2,039 in additional benefits?
This is not the “most significant social policy innovation in a generation,” as Morneau boasted in his speech. It is an absurdly generous handout to one particularly favoured demographic — middle-class parents — giving them a few dollars more to spend on red wine and posh cheese.
Morneau’s line is that he has made important investments for the future of Canada. Many Canadians will fear he has misdiagnosed the malady and applied the wrong remedy.