Skip to main content

Farewell, Constantly Declining Debt-to-GDP Ratio, we hardly knew ye.

You remember D-to-G. That was the standard that took the place of “Modest Deficits for Three Years” followed by a balanced budget in 2019-20, the smart new standard on which the Liberals were first elected in 2015 – the one that replaced the simplistic Balanced Budgets standard of the outgoing Conservatives. Good times.

Four years later, in actual 2019-20, the budget is further away from balance than ever – not the zero deficit promised four years ago, not even the $19.8-billion projected last March, but $26.6-billion, as of Monday’s economic and fiscal update. (The government blames an increase in its estimated future pension liabilities, a consequence of sharply lower interest rates, as if this could not have been foreseen or as if it were not largely cancelled out by lower debt-service costs.)

But, as I say, we are no longer concerned with the annual budget balance. It’s the total debt that counts, according to the new orthodoxy, not the amount added to it in any one year, and then only relative to our ability to finance it, for which GDP is a decent proxy.

So, as of the Liberals’ 2019 election platform, the standard had become “We Will Continue to Reduce the Government’s Debt As a Function of Our Economy Each and Every Year” – a constantly declining D-to-G ratio.

I had expected this promise would be good for a year or two at least. I had not expected the Liberals would renege on it before they’d even presented a budget.

Yet there it is in the update. D-to-G in the current fiscal year shows not the promised decrease, but a small increase. To be sure, the update projects it will resume falling again in later years. But then it always does. Year after year, budget after budget, update after update, the government keeps producing finely drawn graphs showing the D-to-G majestically curving downward into the future, hoping no one notices the curves themselves keep shifting upward.

By this year, according to the Harper government’s last budget, D-to-G was supposed to have fallen to 25 per cent. The Liberals 2015 platform moved that up to 27 per cent. By Budget 2018, that had become 29.8 per cent, climbing to 30.7 per cent by Budget 2019. It is now supposed to be 31 per cent, where it is supposed to remain next year. But stay tuned: It is almost certainly destined to be revised upward again.

These figures, after all, are before much of the Liberal platform has been implemented. Of the $57-billion in new “investments” over four years, the update pencils in only the cost of the increase in the Basic Personal Amount ($18-billion). Neither do they account for the promises, such as a national pharmacare program, the Liberals neglected to cost in their platform.

Nor do they include the costs of placating the various interests now demanding that a weakened minority government placate them, from the premiers (faster growth in federal-provincial transfers, plus a more generous Fiscal Stabilization Program) to the opposition parties. And they most certainly do not include the costs of a recession: After 11 straight years of growth, the update serenely forecasts five more.

So constantly declining D-to-G is dead, that much is clear. Indeed that was surely the point of the exercise. It would not have taken much statistical jiggery-pokery to show the D-to-G stable or slightly falling, a matter of moving a couple of billion dollars here or there. That the government chose not to do so suggests it is softening us up for further increases to come.

What will replace D-to-G, now that is has proved inconvenient? Lately, the Liberals have begun talking up the federal government’s triple-A credit rating as the new-new standard. “It’s the government’s goal to preserve this rating,” the update declares, which is already a step back from the platform’s more definitive “we will preserve this rating.”

And when that standard is discarded, too? I can already hear the Finance Minister’s speech. “Mr. Speaker, we had a choice in this budget. We could allow our fiscal priorities to be dictated by the arbitrary edicts of the international credit-rating agencies. Or we could respond to the real needs of Canadians. Mr. Speaker, let it be said, we chose Canada …”

Well of course he will. Once you have wriggled free of one standard of budget discipline, it is that much easier to wriggle out of another, and another, until at last you are moored to no fiscal anchor whatever. Which should have been obvious from the start. It wasn’t the stringency of the old balanced-budget rule to which the Liberals objected. It was the concept of rules altogether.

Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe