The turning point in last fall's federal election may have been the moment Justin Trudeau's Liberals promised to run a deficit. Breaking that great taboo turned out to be the right call politically, and then some. More importantly, it was also the right call economically. The Conservatives had presented their obsession with balancing Ottawa's books by 2015 as textbook orthodoxy, allegedly demanded by arithmetic, bond raters and the economic gods, but given the state of the economy and the federal government's extremely positive fiscal position, it was really just a marketing gimmick. The Liberals won by punching holes in it.
What did the Liberals get right in 2015? That when measuring a government's long-term fiscal sustainability, the data point that matters is not the deficit, but a relative measure – the debt-to-GDP ratio. That the federal debt-to-GDP ratio, lowest in the G7, has been falling steadily, and can continue falling even under the modest deficits in the Liberal platform. That Canada's long-term challenge is boosting long-term economic growth. That infrastructure investment, if well-invested, could boost long-term economic growth. That at no time in history have interest rates been so low. And that if money borrowed at those low interest rates is invested wisely, the ultimate cost could be low or nil, with the new spending paying for itself over decades in increased economic output.
But we come not only to praise Caesar, but to criticize him. On Wednesday, The Globe reported that Finance Minister Bill Morneau, quarterback for the government's budget, is in what's known in football as the hurry-up offence. He's under pressure to get out of the huddle and start throwing the ball, ASAP. The government apparently wants to bring down a budget in March. However, that likely means leaving the Commons Finance Committee with no time to hold pre-budget hearings with interest groups and policy experts. In other words, the government's opening budget, involving a big change of course and billions of dollars in new infrastructure investment, is likely to be powered by less feedback and planning than previous budgets, not more.
Why does this not inspire confidence?
The issue is bigger than whether lobby groups get to make their pitch to parliamentarians. It's whether the government, if we can return to the football analogy, is going to fumble the ball by rushing the play. And the Trudeau government is, once again, clearly rushing, with no good reason. As was the case with the orchestrated crisis of the imaginary Dec. 31 Syrian refugee deadline, so it goes with this artificial budget deadline. Is the country really going to be materially worse off if the budget gets a few more weeks of study, and arrives in April instead of March? Be serious.
The Liberals are changing course compared with the Tories, and they're trying something new. They've got to get it right. Canadian governments have a long history of spending on infrastructure, and an equally long history of misspending and overspending on infrastructure. If you're looking for the fly in the Liberal deficit ointment, there it is: Politicians are experts at wasting money, and there are always lots of people willing to help them.
It requires an enormous amount of thought and planning to avoid taxpayer money being wasted, or worse. And unless most of the Liberal infrastructure cash is visibly well-spent, on infrastructure that improves the efficiency of the economy, delivering the biggest bang for the least bucks, voters will notice, and they'll blame the people they elected last year.
The biggest part of the Liberal brain trust used to work for Ontario's Liberal government, and they should keep that province's electricity policy fiasco – prices keep rising, thanks to a government scheme gone wrong – uppermost in mind. This was a huge unforced policy error, 100 per cent authored at Queen's Park.
There's been a lot of speculation about whether Mr. Morneau's first budget should feature larger deficits than the Liberal platform promised. Given the state of the economy, he's hinted as much. And the truth is, deciding how big a deficit to run should come down to the state of the economy. All of which is another reason not to rush the budget, the better to take an accurate temperature of how bad things are, or aren't.
Back in 2009, the Conservatives ran up a huge deficit fighting the Great Recession. It was the right move. Piles of money were thrown out the door, quickly. To some extent it didn't matter how it was spent. Borrowed government money was pumped into the economy to replace disappearing private spending. That's what you do in a recession.
But last fall's Liberal deficits-for-infrastructure plan was not about fighting a recession, since Canada wasn't in a recession. It was about long-term, targeted, economic benefits, not 2009's short-term stimulus. If the Liberals plan to run much bigger deficits, they and Canadians have to understand why. As they did during the election, they need to present their case.