Canada’s business leaders are calling on Finance Minister Bill Morneau to set a firm target for erasing the deficit after his department released figures showing Ottawa will not balance the books until the 2050s.
Former Liberal finance minister John Manley, who is now president and chief executive officer of the Business Council of Canada, said a deadline is needed to help the government keep spending under control.
“In many ways, it’s the main job of the finance minister to say ‘no,’ and if you don’t have a clear fiscal framework that everyone has made a political commitment to achieving, it makes the job of the finance minister very, very difficult,” he said in an interview on Friday. “If you have no framework, then everybody’s got a good case for spending.”
Mr. Manley has written to Mr. Morneau, warning him that the government’s current acceptance of long-term deficits will hurt the Canadian economy by weakening business and consumer confidence. The letter calls on Mr. Morneau to use the 2017 budget as an opportunity to lay out a clear plan for the deficit.
Canadian Chamber of Commerce president Perrin Beatty agrees.
“The goal should be to get back to balance and to do so within a reasonable period of time,” he said, describing Finance Canada’s latest projections as “ominous.”
Mr. Beatty was a senior cabinet minister in the Progressive Conservative governments of the 1980s and early 1990s that struggled to contain deficits and did not produce a surplus.
“I’ve been through this before,” he said. “It’s an awful lot easier to get into structural deficits than it is to get out of them. … We have to remember the money we’re spending is borrowed money.”
The state of Ottawa’s bottom line is heating up as an issue ahead of the 2017 budget, expected in March, after Mr. Morneau’s department released new long-term projections showing the federal fiscal landscape has deteriorated considerably over the past two years.
Finance Canada posted a report online two days before Christmas that projected federal deficits will continue for decades until the 2050s. The department’s previous long-term forecast, released in November 2014, had showed decades of surpluses.
The December, 2016, report stated that in spite of the annual deficits, Ottawa would still be able to shrink the federal debt slightly over time when measured as a percentage of gross domestic product.
Mr. Morneau’s office said this week that the report shows federal finances are sustainable but that Ottawa needs to be prudent in response to provincial calls for larger transfers of money for health care.
Premiers are demanding a first ministers meeting with Prime Minister Justin Trudeau to discuss the requests.
Ontario Finance Minister Charles Sousa said in an interview on Friday that he still believes the federal government has the fiscal room to spend more on health.
“The federal government will have to choose its priorities,” he said, questioning whether Ottawa would put health care at risk in an effort to balance the books. “You’ve got to be more efficient. We’re doing that. We need a partnership with the federal government to assume some of that risk too. … The federal government does have more fiscal room.”
Over the past year, federal Liberals have highlighted the importance of a declining debt-to-GDP ratio as the government’s main fiscal anchor and have moved away from discussing a firm date for erasing the deficit.
The Liberal Party campaigned in 2015 on a plan to run short-term deficits before balancing the books in 2019.
Over the past year, policy experts have debated the pros and cons of using the debt-to-GDP ratio as the single measure of the government’s fiscal health.
Economists agree that debt-to-GDP is an important metric for international comparisons and assessments of whether debt will trigger international concern among lenders.
Canadian Imperial Bank of Commerce chief economist Avery Shenfeld pointed to that measurement on Friday as he played down concerns over the projected string of deficits.
“Canada’s federal debt-to-GDP ratio, currently consistent with a AAA rating, would end up at 29 per cent in 2035, slightly lower than where it now sits, and less than half the scary levels of the 1990s,” he said in a research note. “We won’t be leaving our children with a mountain of debt relative to either the economy’s annual output or, for that matter, the assets we leave behind, given the new focus on infrastructure investment.”
Still, other economists warn that the debt-to-GDP ratio is a “soft” target that could easily be knocked off track by several events, including a recession.
Alexandre Laurin, director of research with the C.D. Howe Institute, said Ottawa should go back to the practice of previous federal governments by setting a firm target date for eliminating the deficit.
“It’s much better. It’s easier for everyone to understand,” he said. “It’s easier to maintain discipline.”Report Typo/Error