Throw out the old predictions. Every Canadian government is going deeper and deeper into the red, from Ottawa, as we learned yesterday with Prime Minister's Stephen Harper's budgetary update, to fading Ontario, to supposedly well-off Alberta.
Going into deficit is easy; getting out is much harder. What these deepening wells of red ink therefore mean is greater certainty that tax increases and/or spending cuts lie ahead, the only questions being when, where and by how much.
Any politician who denies this reality should be defeated in the next election, or, if an election isn't coming soon, hooted and booed off every stage. No election should be fought on the false premise that Canada can simply grow its way out of deficits.
For Mr. Harper, it's been an amazing seven months: from blinkered denial in late November that a deficit loomed, to consistent underestimation ever since of the size of the ballooning deficits. Yesterday, Mr. Harper confirmed a $50-billion deficit, not a pretty number.
Mr. Harper hasn't been alone in wrong predictions. Here in Alberta, the Conservative government predicted a $4.7-billion deficit, but as Finance Minister Iris Evans acknowledged this week, the prediction is under "real strain."
Translation: Alberta's deficit will be much higher, courtesy of low natural-gas prices, plunging corporate tax revenues and a stronger Canadian dollar that lowers the return on energy exports denominated in U.S. dollars.
B.C. Premier Gordon Campbell campaigned on a deficit number he insisted he would stick to after the election. Experts suggest he'll have to raise taxes or cut spending by somewhere between $500-million and $1.2-billion to achieve that number. Or he can wave it goodbye.
Ontario has already given up the deficit ghost, admitting that its deficit has soared over the horizon. Rating agencies are circling around the province's coveted but now threatened high credit rating.
Nowhere in Canada does even a vague idea exist about restoring eventual balance to the nation's finances. We only know that bigger deficits mean a longer payback time. Politicians and voters are so preoccupied, for understandable reasons, with the anguish of today that they cannot get their minds around the budgetary challenges of tomorrow.
When the deficits began, governments assumed a recovery with considerable momentum in 2010, and robust growth in 2011 and beyond. The economy here, and elsewhere, had caught a severe flu that would debilitate the country for a while but then disappear.
Some forecasters are sticking with this prediction. We can hope that they are right. Certainly the nation's treasurers do. But a combination of other possibilities suggests they might be wrong, which would mean recovery will be painful and delayed, with budgetary deficits therefore being bigger and lasting longer than the federal and provincial governments believe.
Here are a few ominous possibilities.
The Canadian dollar is likely to keep rising against the U.S. greenback, not because of Canada's stronger economic fundamentals but because of the staggering indebtedness and trade deficits of the United States.
A rising dollar will slam manufacturing, but it will also hurt commodity exports denominated in U.S. dollars, thereby spreading pain all across the country, including in Alberta.
Oil prices will likely rise more, especially when recovery takes hold in Asia, as it will before North America. Oil prices will help Alberta, Saskatchewan and Newfoundland but hurt recovery everywhere else.
Inflation. It's not on the horizon, but it could be, with the United States at the epicentre. The country has partly inflated its way out of the last two recessions, but this time, its deficits and debt are mind-boggling. They can only be closed by raising taxes, reducing spending or inflating, thereby making holders of U.S. dollars abroad pay the country's debts in devalued coin.
Given the proven inability of the U.S. government to raise taxes (except on the wealthy) or cut spending, what's left but to inflate?
Inflation would put upwards pressure on interest rates, making debt repayment more expensive in turn. Borrowing at today's historic low rates is easy for governments; borrowing a lot when rates are higher will be painful, indeed.
Deficits, now exploding across Canada, leave a country with more limited room for future action. Put another way, they make us somewhat more secure today, but definitely more vulnerable tomorrow.