I keep reading about this new era of fiscal discipline and sober responsibility that is supposedly dawning in the federal government – why, didn’t the Finance Minister go so far as to tell her fellow ministers they would have to find 25 cents in cuts to existing spending for every dollar in new spending they proposed? – but it never seems to arrive.
Last year’s budget, which some excited commentators described as fiscally conservative, in fact increased spending to previously unheard of levels: not because of temporary pandemic-related measures, which have mostly been unwound, but years into the (presumably pandemic-free) future. At nearly $10,000 per capita, in constant 2020 dollars, it put spending on a track that was 12 per cent higher – after inflation, after population growth – than even the Liberals’ free-spending first years.
But of course that was almost certainly an underestimate, for the simple reason that spending projections are always, always – how can I put this politely? – complete lies. Example: The spring budget projected spending for the current fiscal year at $434-billion (I am including “net actuarial losses,” which the current government has lately taken to excluding from spending, for no good reason).
Yet just six months earlier, in last year’s fall economic statement, spending for this year was projected at $424-billion. In Budget 2021, it was projected at $412-billion. In Fall 2020, it was $386-billion. Fall 2019 (there was no budget in 2020, recall): $370-billion. Budget 2019: $358-billion. All told, that’s an increase of $76-billion, or 21 per cent, in just 36 months.
Again, these are not increases in spending from one year to the next. They’re all for the same fiscal year: The figure just gets constantly revised upward. And so to this year’s fall economic statement, where we find that spending for the current fiscal year has been revised upward again, to $448-billion, or $14-billion more than it was projected at the start of the year.
What is the point of issuing forecasts that bear no resemblance to reality? I’ll tell you the point: deception. Budget after budget, fall statement after fall statement, the government projects spending to grow at a modest pace, a gently upward-sloping curve, and credulous reporters rabbit on about the “new era of fiscal restraint.”
But as the entire curve keeps shifting higher, ever higher, with each revision, actual spending ends up growing at a quite prodigious rate. I wish it were a cleverer con than that, but really that’s all there is to it.
It could have been worse, I suppose. In previous years this government, finding itself in possession of an unexpected revenue windfall – the fall statement puts revenues this year at $446-billion, fully $37-billion over the budget forecast, the fruit of unexpectedly high inflation – would have spent every last dime of it. This time they only spent a little over half of it – three-quarters, if you count the near doubling of interest costs (also the fruit of unexpectedly high inflation).
Mind you, these figures probably bear even less relationship to reality than usual. The government acknowledges that, sort of: together with its “Baseline Scenario,” the figures it wants reported, it includes a second, decidedly gloomier “Downside Scenario” – the one that would result if the economy, instead of skating along at near zero-growth next year, tips into outright recession.
So whereas the Baseline Scenario has the deficit declining steadily from year to year, from $90-billion last year to less than $15-billion three years from now, if Ol’ Devil Downside has his way the deficit will actually increase next year, to $52-billion, and won’t get below $30-billion till late in the decade.
Which is more likely? The Baseline numbers are based on a survey of private-sector economists conducted in September. But since then the outlook has deteriorated considerably, to the point that, as the statement acknowledges deep in the text, “the balance of risks to the growth outlook are tilted to the downside, with growth more likely to come in below the survey than above.”
But never mind. The federal government’s fiscal position remains “sustainable.” The government remains committed to its “fiscal anchor” of a steady decline in the debt-to-GDP ratio – or should I say somewhat committed to an unsteady decline, since in the Downside Scenario the ratio increases next year, before resuming the majestic decline that the government always projects in future years, but never quite manages for more than one or two years in the present.
The longer-term issue is not the federal debt but the provincial – the product of skyrocketing health care costs and chronically slow growth, both attributable in large part to an aging population. The federal government can do little about rising health care costs – well, it could stop sending the provinces such enormous sums of cash, if it really wants to help, since as long as the money keeps flowing they will never reform their systems.
It is similarly constrained in its ability to offset population aging – though the higher immigration rates it has announced will help. But it can do something about long-term economic growth. The good news, as I said this spring, is that it at last realizes we have a growth problem – one of the slowest projected growth rates in the OECD, as shown by a striking chart in the budget, in the decades to come. The bad news is that it does not have a clue what to do about it.
That does not appear to have changed, to judge by the fall statement – the same hodgepodge of “growth funds” and “innovation agencies,” which will no doubt do wonders for their lucky recipients but will not move the needle even a fraction as far as the overall economy is concerned. The broader, deeper, more radical measures needed to spur investment across the economy, not just in the government’s pet sectors, will have to wait for another budget, or perhaps another government.