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Federal Finance Minister Jim Flaherty delivers an update of economic and fiscal projections in Edmonton on Tuesday, November 12, 2013. THE CANADIAN PRESS/Jason Franson (JASON FRANSON/THE CANADIAN PRESS)
Federal Finance Minister Jim Flaherty delivers an update of economic and fiscal projections in Edmonton on Tuesday, November 12, 2013. THE CANADIAN PRESS/Jason Franson (JASON FRANSON/THE CANADIAN PRESS)

Globe editorial

What to do when the deficit is gone? Add to ...

Right on schedule, and just in time for the 2015 election, the federal government is about to be faced with the happy problem of a large and growing budget surplus. Finance Minister Jim Flaherty’s fall economic update predicts a surplus of at least $3.7-billion in 2015-16, rising to nearly $10-billion by 2018-19. And that’s using some fairly cautious assumptions. There’s room for those numbers to be bigger, and the end of the deficit could even land a year sooner. Canada is about to once again enter the politics of the post-deficit era.

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And that puts the Conservative government in a position to bring forward a 2015 budget filled with goodies. Tax cuts, anyone? But lowering government revenues isn’t the only way to deal with a surplus. Will voters want more spending on existing programs? New spending programs? Some mix of lower taxes and higher spending? The stage is set for the debates that will mark the next election.

After the recession hit in 2008, the Conservative government did the right thing, temporarily abandoning its long-term plan of making the federal government smaller. As Canada’s private sector contracted, stopped investing and shed jobs, Ottawa moved in to stimulate the economy with new spending. The deficit shot up to $55.6-billion in 2009-10 – an unsustainable number in the long run, but the correct move in the face of the worst global downturn since the Great Depression.

The Conservatives have been steadily whittling away at the deficit ever since. In fact, this year’s projected deficit of $17.9-billion is already low enough that the size of the national debt, relative to the size of of the economy – the debt-to-gross-domestic-product ratio – is no longer growing. By next year, the debt-to-GDP ratio will be shrinking.

The year before the recession hit, federal program spending was 13 per cent of GDP. That rose to 16 per cent of GDP in the recession, a number that has been falling ever since. In 2014-15, federal program spending as a share of the economy will be back to pre-recession levels. And then, according to Mr. Flaherty’s projections, the federal government will keep on shrinking, with program spending dropping to 12.4 per cent of the economy in 2018-19.

Is that what voters want – lower taxes thanks to smaller government? The election of 2015 will revolve around this question. It turns out that a balanced budget isn’t just a destination. It’s also a starting point.

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