Budget in the big picture


Political Point of View



“Economics is the dismal science.” – Thomas Carlyle, paraphrased.

The Liberal party’s big win in the last Federal election was partly the result of their promise to do things differently than the Conservatives. Promising a more modern, 21st century approach with emphasis on technology, green energy alternatives and the always-nebulous “middle class,” Prime Minister Trudeau released the brakes on government spending and issued his recent budget with a deficit of $30 billion instead of the promised $10 billion.

International money markets took this in stride because Canada’s public debt is far lower than that of Japan, France, the UK and even famously thrifty Germany and less than 40 per cent of the G7 average. There is room to borrow because Harper’s government lived mostly within its means, although like governments everywhere, they increased the national debt to its highest level ever.

The preferred method of stimulating a sluggish economy in the U.S. has been “quantitative easing” whereby the printing of money to buy bonds was supposed to lift demand, raise wages and grow the economy. While making Wall Street hum along nicely, it did nothing for the middle class except exasperate them. Median wages for the middle class there, as here, have not risen in 30 years.

Trudeau is taking a different approach by increasing spending directly on projects aimed at solving specific issues like infrastructure in First Nations communities, public transit and green energy, by bypassing monetary policy and using direct fiscal policy — a more specific approach akin to what Roosevelt did in the U.S. in the 1930’s to pull the country out of the Great Depression. Whether this will be a magic bullet or simply a flash in the pan remains to be seen. The federal spending portion of the GDP is a relatively modest 16 per cent compared to France’s 57 per cent, so its economic bang may be more of a pop.
In any case, the jury is still out on the program and Canadians seem to hold the new man in charge in high regard. We all know our resource based economy is struggling with low commodity prices and the government is trying to do the right thing.

The fly in the ointment is while the Feds are somewhat prudent, most provinces are not. Ontario and Quebec are some of the most highly indebted non-federal jurisdictions in the world. Interest payments in Ontario are the third most expensive items in its budget after health care and education. Rates are low and the temptation to use cheap money is irresistible to populist-pandering politicians.

Borrowed money needs to be paid back, regardless of how cheaply it was acquired and every dollar spent servicing debt is not used to benefit the middle class or anyone else. Increasing the Child Tax Benefit, making railways safer, enhancing food safety, plus the other feel good initiatives sound good but are questionable fiscal policy tools in the big picture. In any case, let’s give the new guy a chance because that’s what Canadians voted for.