Take a loonie out of your pocket. Lay it flat on the table. Imagine placing another on top of it, then another. Repeat until the pile is not quite halfway to the moon. Now you have a picture of how much the federal government and the provinces will rack up in deficits this year.
A stack of $90-billion worth of dollars - that's a good estimate of Canada's contribution to global deficit-mania, say economists at Toronto-Dominion Bank - would be nearly enough to circle the earth four times if placed on its side, or make 10 round trips from St. John's to Victoria (including the ferry rides).
That so much red ink is blotting the nation's books is not considered a crisis, of course, because everybody's doing it and because Canadians believe they were so damn responsible during a 17-year economic expansion than ended with a thud last year. A decade of federal surpluses, even as supposedly conservative Americans spent and spent some more, has made us feel fiscally smug.
But what if we've overestimated our own prudence? What if all of that now-forgotten black ink was less a product of Preston Manning's harping, or Paul Martin's cutting, than a great deal of luck? Maybe luck's not quite the right world. Call it a happy confluence of factors.
For most of the period in which Canada quashed the deficit, the U.S. economy was humming, inflation was tame, and interest rates were low or declining.
The last of these was doubly positive. Falling rates helped governments finance their debts more cheaply, and they drove the value of equities higher. Seeing this, Canadians jumped onto the stock market bandwagon and made a lot of money (for a while), generating capital-gains taxes. One of the little-known secrets of the victory over the deficit, in fact, was the role of revenue from investment taxes, which doubled between 1993 and 2008 for the federal government and the provinces. That was nothing compared with the corporate tax haul, which rose nearly fourfold.
The result: Over that 15-year period, total government income - again, we're talking about the feds and the provinces, not just Ottawa - rose by about 4.8 per cent a year. Inflation, thanks largely to men named Thiessen and Dodge, was 1.9 per cent. When the taxman's take is rising in real terms by 3 per cent, year after year, the magic of compounding takes hold. Finance ministers had the capacity to paper over a lot of mistakes and a lot of waste - and still had enough to mop up what had once seemed like an insurmountable deficit.
So which of these factors will help bail the country out of its new fiscal jam? Lower rates? They can't get much lower. Another stock market boom? Maybe, but it will be a while before those enthusiastic buyers of the Canadian resource shares, circa 2007-08, will have capital gains to tax. A roaring recovery in the U.S.? In the long run, it's usually a bad idea to bet against America. But as Kevin Carmichael's cover story makes clear (see page B1), the U.S. economy will be carrying a fiscal millstone for a long time. Population growth? Not unless Canada begins to attract tens of thousands more immigrants every year.
Higher taxes? Let's see the party leader who can sell that one.
Demographics weigh heavily in this equation, which is one reason why the long-term growth rate of the economy is likely to slow substantially - to 2 per cent a year, says TD, from a recent average of about 3 per cent. The gap has massive implications for government revenues; if true, it means that governments everywhere, from the smallest township to the capital, will have to adjust their costs and their thinking in the same way that every major corporation already has. Right now, there's zero political will to look at it that way. It's much easier for finance ministers to assume economic growth will bring that deficit pile back to Earth.
Derek DeCloet