Was it wrong for the Harper government to balance the budget this year? That depends on whether we have become as conservative as the Prime Minister thinks we are.
The government promised to eliminate the federal deficit by 2015 and it has, although it took a bit of fiscal legerdemain. But in the opinion of many respected economists, a balanced budget is a mistake.
Growth is sluggish. Interest rates are at historic lows. Infrastructure, from sewers to subways, is rundown. Investing now in early-childhood education, for example, would pay off in improved productivity later.
While a conservative minority of economists supports the government’s balanced-budget approach, a broader consensus of experts believe that running a modest deficit over the next couple of years, with the money going to any or all of the above, would be the wiser approach.
“If there are projects at hand that can be financed at record-low interest rates with long-term payoffs, then we shouldn’t let a balanced budget stand in the way of that,” believes Andrew Jackson, senior policy adviser for the Broadbent Institute, a progressive think tank.
Don Drummond, the former chief economist of the TD Bank and associate deputy minister of finance, asks one simple question: “Is the economy running below its potential?” The answer, unequivocally, is yes. The role of government in such circumstances, he believes, “is to provide stimulus, but not to go wild.”
Many economists south of the border agree. Larry Summers, who was U.S. treasury secretary under Bill Clinton and who has been offering advice to Liberal Leader Justin Trudeau, is arguing for deficit-financed stimulus spending to promote growth, reduce inequality and renew infrastructure.
Ontario’s government, under Liberal Premier Kathleen Wynne, is deliberating running deficits and raising taxes in order to fund a massive retooling of the province’s transportation infrastructure, and calling on Mr. Harper for help.
But help, for the most part, will not be forthcoming. While this election budget does spend on infrastructure, the greater emphasis is on tax cuts and a budget surplus. The Conservatives will campaign on both from now till the election on Oct. 19, because Mr. Harper believes this is the message an increasingly conservative population wants to hear.
There is always a reason to run a deficit. Some reasons are better than others. In November, 2008, Group of 20 leaders (including Mr. Harper) unanimously agreed to stimulate their economies through deficit spending to prevent a severe recession from turning into a depression.
Since then, the Conservatives have been steadily reducing the deficit until, by last year, it was effectively balanced. And it will remain balanced for the rest of the decade, barring a new recession.
Mr. Harper believes that a broad swath of voters prefer to see government small, books balanced and taxes low. Such voters believe that it is wrong – even immoral – for governments to be adding to the debt during times of growth.
These are the voters who watched decades of deficit in the 1970s and 80s spiral into the fiscal crisis of the 1990s. They remember how painful it was to break the back of that crisis and they don’t want to go through it again.
Then there are the immigrant voters from Asia and elsewhere who are more economically and socially conservative than many native-born Canadians. They delivered a majority government for Mr. Harper in 2011 and he is counting on their support one more time.
Mr. Drummond acknowledges that running a deficit outside a recession “violates the ingrained belief among Canadians that ‘thou shalt balance the budget.’”
So ingrained is that belief that the NDP and Liberals are unlikely to offer election platforms that include a return to deficit financing. While emphasizing differences at the margins, they will cleave to Conservative orthodoxy in the main.
Many economists will point out that such thinking is old-fashioned and counterproductive. The Conservatives don’t care. They are convinced that voters are old-fashioned, too.
They’re willing to bet the election on it.Report Typo/Error