Thursday's federal budget must confront a hard truth: We are entering a dark decade that will test the will and ability of governments across Canada.
Facing that truth and meeting it head-on will limit the pain to come. But democracies rarely work that way. The temptation for government and opposition politicians is to ignore gathering clouds, or promise to make them disappear, without saying how.
But that hard truth, those dark clouds, will not go away.
“This budget is a tipping point,” says Janice MacKinnon, who was Saskatchewan's finance minister when that province became the first to balance a budget back in the 1990s. “The message to Canadians has to change from one of ‘spending is good' to ‘cutting is necessary.' Governments have to begin to confront the challenges and phase in tough choices.”
Prime Minister Stephen Harper tried to switch the political channel Wednesday, with a Speech from the Throne that offered an overtly conservative response from this Conservative government to the economic challenges facing our country – a response that includes more foreign investment, less red tape and limits to public-service salaries.
Finance Minister Jim Flaherty tries on his new budget shoes at a store in his home riding in Whitby, Ont. — Mike Cassese/Reuters
But while the Throne Speech might have made the debate over proroguing Parliament old news, it offered no clear plan to address four forces that are dragging at Canada's hopes for a prosperous decade.
The first is the decade that just ended. Canada is only now emerging from a recession that sent unemployment to 8.7 per cent and this year's federal deficit to $56-billion.
Mr. Harper has promised to eliminate that deficit by 2015 without cutting spending or raising taxes, relying instead on revenues from a growing economy.
Can't happen, says the Parliamentary Budget Officer.
“We do not have a sustainable fiscal situation,” Kevin Page maintains, “and the whole world is watching.” To Finance Minister Jim Flaherty's chagrin, Mr. Page's office has repeatedly maintained that the federal government has a structural deficit that can be eliminated only by cutting spending or raising taxes.
The budget will do neither. Nor will it reduce transfers to provinces, because that would imperil funding for health care, the second cloud on the horizon.
With costs rising by 2.5 per cent a year, after accounting for inflation and population growth, health care is consuming nearly half of the budget in some provinces, even as the baby boom heads into retirement. Canadians need to confront the truth that the health-care system as it exists simply can't be sustained.
“The federal government will be under intense pressure from the provinces, who will not be able to make ends meet because of the explosion in health care spending,” warns Pierre Fortin, an economist who teaches at the Université du Québec à Montréal. “The provinces will always be at the door, asking for more money.”
But aren't they always? “You haven't seen anything, yet,” he predicts.
Whether it means increasing public funding, reducing services, exploring private-sector alternatives or charging users, Canadians need to debate how to provide health care for an aging population without bankrupting governments or impoverishing patients.
But funding health care – and defence, and foreign aid and all the other commitments of a federal government – depends on revenue from businesses and taxpayers. That revenue, in turn, depends on a robust U.S. economy to buy Canada's goods. Canada is an exporting nation, and most of those exports go to the United States.
But that's another cloud. The U.S. economy is deeply troubled. The federal budget deficit, at $1.6-trillion (U.S.), represents almost 11 per cent of gross domestic product. (Canada's deficit is a mere 5 per cent of GDP.) Thanks to the bursting housing bubble, almost one-quarter of all U.S. mortgages are under water – the mortgage on the house is more than the house is worth.
