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Today’s federal budget could be one of the very few that end up being watershed moments in Canadian fiscal history.

There have been a handful of such moments: the creation of income tax during the First World War; the massive deficits incurred during the Second World War; the budgets of the late 1960s that put in place federal funding for national health care; and the 1995 budget from a Liberal government that finally tackled two decades of fiscal deterioration.

Child care is likely to be a centrepiece of the Liberal’s fiscal plan. In the most recent Tax and Spend, I take a look at how the original rationale for child care – to help speed the return of mothers to the work force – is dissolving as employment picks up.

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But there is still ample reason for the government to spend the billions needed for such a program, given Canada’s aging work force and what will be an increasingly pressing need to increase the number of workers relative to retirees.

Watch for more on child care, green expenditures, stimulus spending and, possibly, a path to reducing the size of the federal deficit later today at globeandmail.com, where we will have a team of reporters and columnists with in-depth coverage of the 2021 federal budget.

Taxing questions

How can Canada pay back its pandemic debts? That’s a common question that one reader asked in response to a recent article by my colleagues Robert Fife and Bill Curry looking forward to today’s federal budget.

The simple answer is – we don’t have to. Countries can simply roll over debt, issuing new bonds when existing ones come due. And countries, particularly those with strong credit ratings such as Canada, face little pressure to pay down debts.

In fact, there have been relatively few years since Canada was created – just 33 – in which net federal debt fell. For the other 121 years of Canada’s existence, debt has risen.

Canada’s experience after the Second World War is instructive. In the eight years after the war’s end, there were small debt repayments (to see the data yourself, check out FinancesoftheNation.ca). Even so, net debt was still three times higher in fiscal 1954-55 than it was before the war.

What really eased the debt burden, however, was growth in the economy. In fiscal 1946, net federal debt was a staggering 110 per cent of gross domestic product. By 1954-55, net debt had decreased to 38 per cent of GDP. That reflected both the surpluses that paid down debt, and the postwar economic boom.

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But the debt burden kept on decreasing over the next two decades, even though Ottawa began running small deficits that added to the dollar value of the debt. (The government also kept a relatively tight lid on spending until the mid-1960s, which helped.)

By 1975-76, the debt was only 14 per cent of GDP, even though its nominal dollar value was much higher. That decrease happened not because Ottawa paid down its debts, but rather because the economy expanded (and inflation eroded the real value of those dollars borrowed earlier).

After the mid-1970s, Ottawa’s spending increases, rising interest rates and a slowing economy sent the net-debt-to-GDP ratio on an upward trajectory. That culminated in a peak net-debt-to-GDP ratio of 67 per cent in 1995-96, ushering in the cost-cutting Paul Martin budgets of the mid- to late 1990s.

So, the lesson is: Debts don’t have to be paid down. But they can’t be ignored, either.

Line item

B.C.’s log ride: Surging lumber prices could deliver as much as a $1.3-billion upside for British Columbia in fiscal 2021-22, BMO senior economist Robert Kavcic noted ahead of this week’s provincial budget. In its last budget, B.C. assumed lumber prices of US$360 per 1,000 board feet, but lately, those prices have headed north of US$1,000. In a research note, Mr. Kavcic said that even using a lower price for the year of US$800 would give B.C. an additional $1.3-billion in revenue – although he expects the government will use more conservative forecasts.

Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.

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