In Canadian federal politics, balanced budgets are kind of like Christmas presents for hard-to-please relatives: It's the thought that counts. But not for much longer.
When the ruling Conservatives tabled their 2015-2016 budget in the House of Commons on Tuesday, it was the first time since 2008 that Stephen Harper's government had submitted a balanced budget. In between, it had run up nearly $150-billion of cumulative deficits – during which time Mr. Harper and his colleagues had consistently and steadfastly preached balanced budgets as the cornerstone of their long-term fiscal strategy.
Their commitment to the philosophy of balanced budgets never wavered. Only their ability and willingness to deliver them did.
Yes, there were extenuating circumstances – indeed, some of the biggest in Canada's economic history. The government went deep into the red during the 2008-2009 financial crisis to provide massive government stimulus to keep the economy from plunging into outright depression. The Harper government unleashed a $50-billion stimulus program at the peak of the crisis in early 2009, and the budget deficit ballooned to an unprecedented $55-billion for fiscal 2009-2010.
But deficits, albeit much smaller ones, persisted for years after the crisis had passed and Canada's economic growth returned to something approaching normal. Far from the deficit-inducing, one-time, emergency stimulus simply being removed from the equation when the emergency faded, the government opted to more gradually whittle down its deficits while continuing to feed Canadians a steady diet of tax cuts.
Which, apparently, has been fine with voters – even at the Conservatives' grassroots, where the principles of fiscal responsibility and living within the government's means are sacrosanct. As long as Mr. Harper remained focused on his end goal of returning the budget to balance, his failure to do so earlier, in an economic recovery that is now nearly six years old, was forgiven by at least enough voters to get Conservatives re-elected.
By maintaining the high ground on balanced budgets, in word if not quite in deed, the government had the best of both worlds. It could play to the sensibilities of the voters in the sticks, while simultaneously – and prudently, I should add – providing continuing and substantial fiscal juice to support what has been an uneven and at times halting economic recovery.
But the government is about to put an end to its own proven formula. Its proposed balanced-budget law, if it works as designed, won't just make the occasional deficit a near-extinct beast. It will, in practice, be a surplus-budget law.
The proposed legislation, which will make things awfully uncomfortable for any government that produces a budget deficit, especially in non-recession/crisis times, won't leave a lot of discretion for budget authors. Take, for example, the just-tabled budget, which projects a thin $1.4-billion surplus, and contains a contingency fund of just $1-billion to cover unforeseen expenses or shortfalls. It wouldn't take a massive miss on the economic projections to eat through that $2.4-billion, which amounts to just 0.8 per cent of the budget's total size.
Suddenly, the government would be offside on its own balanced-budget law, resulting in an immediate freeze of all departmental operating budgets, a salary cut for senior government officials, and a public dressing down of the finance minister before Parliament's finance committee during which he would have to explain himself and present an immediate plan to fix the fiscal transgression.
It's not a comfortable prospect for any politician, and that's by design. So the natural defence will be for governments to err in the other direction: surpluses.
If you want to avoid inadvertently slipping into a modest recession, the obvious solution is to budget for a surplus to give yourself ample cushion for an unforeseen downside miss. Or, alternatively, to create a substantial contingency fund in your nominally balanced budget that you can draw from if you come up short. Functionally, it's pretty much the same thing.
But just as conservative voters have a knee-jerk distaste for governments spending more money than they have, they're also not thrilled with governments that routinely collect more money than they need. Indeed, when Mr. Harper was still in opposition, he griped loudly and often about the surplus budgets of the Liberal government of the day, saying they were evidence that the government should cut taxes and give taxpayers the excess money back.
Yet, by upping the ante on its own fiscal-discipline rhetoric, it is setting itself (and subsequent governments) up to habitually overtax, year after year. All in order to guard against breaching a budget-balancing principle that, in practice and for years, it hadn't seen as particularly helpful anyway.