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The Globe and Mail

There's no political will to impose fiscal restraint

Five-year economic forecasts, even from the most respected sources, should be taken with a mound of salt. Such forecasts assume necessarily something that almost never happens: that events will unfold as computer models and expert analysis predict. Alas, events have a way of surprising us.

But forward thinking remains essential, with all the caveats, because we have to plan as best we can - which means that, if the Parliamentary Budget Office is correct, the federal government will still have a structural deficit of almost $20-billion in five years.

The recovery will be complete by then. The economy will be growing nicely. But Ottawa will still have a $20-billion deficit. The result will mean hard decisions or, to put matters another way, a long period of restraint.

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The Toronto-Dominion Bank puts matters a little differently but arrives at the same conclusion. "Expect a fairly uniform shift across Canada - and the world, for that matter - to an era of restraint," said the bank's economics department.

The budget office, the bank and independent economist Dale Orr have all said much the same thing in recent weeks: The Harper government's fiscal approach is wrong, or at least its rather casual attitude to deficits stretching toward the end of the next decade is wrong.

The reasons for concern are many. For starters, as the budget office points out, Ottawa probably will have run budgetary deficits of about $167-billion from 2009-2010 to 2013-2014. The interest on that debt gets added to the government's bottom-line spending.

Then there's slower growth. The TD Bank predicts growth of about 2 per cent a year over the next decade, compared with the historical average of 3 per cent. That gap doesn't sound like much, but, over a decade, the impact of lower annual growth on the federal budget would be significant.

Hard decisions are those that involve raising taxes and curbing spending - and the government has made none of these.

All three reports underscore the demographic freight train of an aging population that will reduce government revenues, because a smaller share of the population will be working, and increase government expenditures for pensions and health care. Among the common message of these reports, one stands out: Get the budget back to balance and start running surpluses, because the freight train is coming.

The government has ruled out tax increases and cuts to provincial transfers, pensions and defence. Those unwise, premature exclusions leave little room for restraint.

The TD Bank, for example, says overall program spending would have to be held at 2 per cent a year. (It has been rising at 6 per cent to 7 per cent under the Harper Conservatives.) Since many programs that can't be cut (pensions, transfers) will keep rising at 5 per cent, and provincial transfers have been rising at 7.5 per cent, it means about half of all government programs must be held to 1 per cent.

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It might seem easy on paper to cut spending to 1-per-cent annual increases. But just try telling groups that form part of the government's core constituency (such as farmers) that their subsidies will be cut, or that the regional development agencies that now cover the entire country will lose money, or that all those industrial subsidies entwined in the nation's business community will be scaled back, as will foreign aid, university research, student assistance and dozens of other programs - to say nothing of those tax expenditures knitted by the Harper government into the tax code for such things as kids' skates, truckers' lunches, apprentices' tools or family allowance cheques.

Nothing in the performance of the Harper government suggests the political will to impose that kind of sustained, serious restraint.

Since being elected, the Harper government has made only the easy macroeconomic decisions. It has cut taxes and let spending rip, especially during the recession. Hard decisions are those that involve raising taxes and curbing spending - and the government has made none of these.

But the economists are saying that hard decisions lie ahead - unless, of course, the government wants deficits to drag on for the rest of the next decade. That would be the path of least resistance, politically speaking, justified on the grounds that the deficit would be a small share of the total economy.

A majority government might have the stomach for hard decisions; a minority government probably would not.

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About the Author
National affairs columnist

Jeffrey Simpson, The Globe and Mail's national affairs columnist, has won all three of Canada's leading literary prizes -- the Governor-General's award for non-fiction book writing, the National Magazine Award for political writing, and the National Newspaper Award for column writing (twice). He has also won the Hyman Solomon Award for excellence in public policy journalism. More

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