It was evident when the ink dried that the Liberal platform rested on shaky fiscal foundations, some of which have already begun to wobble.
Such is the nature of political platforms conceived for maximum political appeal when they must be adjusted for changed realities.
As was noted here and elsewhere during the campaign, the Liberal platform's forecast for economic growth was almost certainly too rosy, among other reasons because it took no account of the depressing effect on economic growth of an aging population.
The Parliamentary Budget Officer has now said in diplomatic language that the Liberals' growth assumptions are "optimistic." The PBO assertion was made before further declines in commodity prices and a downdraft in the stock market.
The Liberal platform anticipated $3-billion in new revenue from higher taxes on personal incomes of more than $200,000. It said this revenue plus other measures would pay for a big middle-class tax cut – the juiciest vote-winner of them all.
The party also spoke endlessly about infrastructure spending to create "jobs now." But the amount of physical infrastructure spending was much smaller as a share of proposed new spending than the party led Canadians to believe.
Most of the new Liberal spending in the platform would be baked into the government's bottom line, unlike one-time temporary infrastructure projects. Additions to the permanent bottom line would make the Liberal promise to balance the budget in four years exceptionally difficult to fulfill. Difficult, too, would be locating $3-billion in "savings" from government operations, since the Conservatives had already hollowed out government spending on operations.
True, the new government will save money by not proceeding with Conservative plans for income-splitting and allowing yearly TSFA contributions to rise to $10,000 from $5,500. These savings, however, are going to be overwhelmed by the waves of new spending the Liberals propose.
So where are we now? The government says the books are in the red instead of the black as the outgoing government had proclaimed – a predictable accusation because almost all new governments claim their predecessors left things in worse shape than they had let on.
The existence of a small initial deficit, combined with lower-than-anticipated growth and new spending commitments for Syrian refugees, will mock the party's promise to hold the deficit to only $10-billion in the first two years of its mandate.
Already Finance Minister Bill Morneau is hedging on the $10-billion target. Of course, the larger the deficits in the first two years, the harder it will be to produce the promised balanced budget in year four.
At the Paris climate change conference, the government doubled Canada's commitment to the United Nation's fund for combating carbon emissions in developing countries, without specifying where the new money would be found. There are two sources: from the existing foreign aid budget, or by adding to the deficit. Something has to give somewhere.
As for the new tax bracket on incomes above $200,000, instead of raising $3-billion as the campaigning Liberals suggested, the federal Finance Department suggests it might raise $2.4-billion. An analysis from the C.D. Howe Institute, by contrast, suggests the tax will raise no more than $1-billion, and will cost the provinces $1.4-billion.
Some provinces have recently increased taxes on the better-off. They are worried that the new federal tax will push highest marginal rates above 55 per cent.
Such rates might lead to even more tax shifting and avoidance, and provide an incentive for professionals to move. Provinces might have to trim or eliminate their own higher taxes, thereby costing them anticipated revenue. A revenue gain for Ottawa might be a loss for some provinces.
The Liberals are counting on their middle-class tax cut and an upsurge in federal spending to fuel economic growth, thereby increasing government revenue. Maybe this will happen, but the tax cut might encourage families to pay down debt or buy imports, neither of which offers much stimulus. And much of the new spending, as noted, gets baked into the government's bottom line, making deficit-elimination harder.
The Liberals' heart is really not in balancing the books, although they have made that commitment. It lies rather in spending and cutting taxes. The clash between the two objectives will be among the endemic tensions inside the Justin Trudeau government.