It’s hard to believe it’s only been six years since Justin Trudeau and the Liberal Party of Canada campaigned on an election platform that proposed to abandon the pursuit of balanced budgets in favour of tiny, temporary deficits to fund infrastructure investments.
At the time, that was considered radical, bordering on heretical.
Now, it looks quaint. There isn’t a major party in this election campaign that hasn’t abandoned the fiscal principles that anchored its platform six years ago.
We are in the midst of a race being run in the shadow of the COVID-19 pandemic that heaped more than $300-billion onto the federal debt in a single year, and the bill continues to grow. Yet none of the major parties – who only a few years ago all had balanced budgets and debt sustainability at the core of their fiscal plans – have presented any plan in their platforms to pay off this crisis-imposed debt.
Last week, the Conservative Party of Canada – long a vocal critic of the Liberal government’s spending and debts, the only major party that still talks about balancing the budget (albeit a decade from now) – released cost estimates showing the price tag of their election platform isn’t meaningfully different from that of their Liberal opponents. Both parties are proposing to run up more than $300-billion in cumulative deficits over the next five years.
Yes, those deficits are projected to shrink on an annual basis – down to a manageable $25-billion under the Conservative plan and $32-billion in the Liberal platform. But that’s not reducing the country’s debt weight, it’s merely slowing the pace of growth.
Under both their plans, net federal debt will end fiscal 2025-26 nearly double what it was before the COVID-19 crisis began. The debt-to-GDP ratio will be about 46 per cent, up from 31 per cent before the crisis, and little improved from 49 per cent today.
“Groupthink changes hard and fast. Yes, the sentiment of many (not just in Canada) is ‘bring on the debt.’ It is a by-product of a long period of very low interest rates,” said Queen’s University economist Don Drummond, who helped craft federal fiscal policy in more than two decades in the Finance Department. “Then the typical human response kicks in – ‘this time will be different’. It rarely is.”
No one is saying that paying off hundreds of billions of dollars in pandemic debt would be easy, painless or quick. But no one is even talking about trying. Even the concept of reining in the deficit is being kicked well down the road – meaning years more of adding on to the debt pile.
It’s not hard to understand why; tackling the debt would require the kind of hard medicine that could kill a campaign. If you consider that the federal goods and services tax (GST), which stands at 5 per cent, brings in about $40-billion a year, you get an idea of just how big a tax increase (or, alternatively, spending cut) you’d have to propose to make a serious dent in the COVID-19 debt over the course of a four-year term.
Are you willing to vote for a party that proposes doubling the GST? I didn’t think so.
“Such a move would never be popular. And this would seem to be the worst time, as so many have drunk the Kool-Aid that spending and debt are free,” Mr. Drummond said. “That would be a hard mentality to turn around.”
But what if the next government viewed the COVID-19 debt as a generational financial burden – and, thus, embraced a generation-long plan to whittle it down?
In a paper published by the C.D. Howe Institute this past spring, John Lester, executive fellow at the University of Calgary School of Public Policy, argues we should spread the task of clearing off the debt over 18 to 25 years – essentially, commit to removing the debt burden before the next generation inherits it. He argues that once the economy has recovered to its prepandemic trend growth path, the time will be right for the government to shift to such a long-term plan.
And Mr. Lester believes that the first step should be to establish a parliamentary committee to hash out the best way to go about this.
Politically, that would be a lot more digestible than, say, announcing onerous tax hikes in an election campaign. Simply committing to a timetable to take your collective heads out of the sand and look into it would be a significant step forward, without having to go out on a limb with talk of tax hikes. And if the task was framed as a generation-long effort, the impact of reversing a half-trillion-dollar debt bulge becomes much more bearable.
Even so, it’s going to require political leadership to address the enormous elephant in the room. But there’s no question that we need a long-term plan, even if no one has the guts to campaign on it.
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