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Joe Oliver probably revealed more than he wanted when he dismissed worries about the revenue hole created by the government's latest tax breaks as a problem for Stephen Harper's granddaughter.

There is a disturbing undercurrent of intergenerational inequality running through the Conservative government's fiscal plans.

And it isn't just about the expanded $10,000 annual contribution limit to Tax Free Savings Accounts – the budget measure that provoked the Finance Minister's sarcastic comment. The expanded tax break puts backloaded pressure on government finances, eventually costing federal and provincial coffers tens of billions a year in lost revenue.

Ottawa is shifting today's problems into the future in other, more significant ways.

Last week's federal budget is notable for what it did not do. The federal government is becoming a less dominant presence at a time when the country could use a jolt of stimulus to offset the oil price collapse.

Federal program expenses will fall to roughly 13 per cent of GDP in Canada this year, down sharply from nearly 16 per cent in the immediate aftermath of the recession. And they're on a course to fall further to 12.7 per cent of GDP by 2019.

Ottawa's fiscal restraint is forcing the Bank of Canada to do a lot more of the heavy lifting. The central bank has kept interest rates low for longer than it otherwise would. And in January, it cut rates as an insurance policy against the hit from lost oil export revenue, further delaying a return to more normal, and higher, rates.

Loose monetary policy is not without costs. It sends a clear and unambiguous signal to Canadians, particularly homeowners, to load up on debt. And that's exactly what they've done since the recession.

Low rates also inflate the cost of housing, which is good for the Baby Boom generation, but very tough on younger Canadians looking to buy their first home. Experts may argue about just how much Canadian house prices are overvalued, but not that they are.

Another consequence of low-for-long interest rates is that they weigh on future consumption. Low rates stimulate spending today, as Canadians buy homes, new kitchens, cars and appliances on credit.

People are essentially buying now on borrowed cash, instead of saving up and purchasing those items later. Why not buy a home, or move up, when rates on a five-year fixed mortgage are at less than three per cent?

Cast forward a couple of years, when the Bank of Canada must inevitably move its trend-setting lending rate up to a more normal level of, say, 2 or 2.5 per cent, pushing up mortgage and other lending rates.

Debt-fuelled consumption lurches to a halt, and the economy is left with a whopping hangover. Just look at how long it has taken for the U.S. housing market to recover if you want evidence of what happens after a credit binge.

When Mr. Oliver said in his budget speech last week that the path to prosperity lies in controlling spending, he was talking about the government.

"Don't compromise tomorrow by spending recklessly today," he said as he unveiled the Conservative government's budget.

And yet the unintended consequence of the government not spending creates a powerful incentive for consumers to do just that – to spend recklessly, splurge now and jeopardize tomorrow's prosperity.

Ottawa won't just have a revenue hole to fill from its income splitting and TFSA tax breaks. Low interest rates risk creating a sizable consumption hole in the years ahead.

If there is ever a good time for government to overindulge it is now. Historically low interest rates mean governments can afford to borrow and spend in the current environment. Ottawa can borrow 30-year money for as little as two per cent right now.

A balanced budget makes for a nice campaign slogan, but it's not clear that it's sound economic policy. Mr. Oliver has conveniently dished off the puck to Bank of Canada Governor Stephen Poloz.

Mr. Poloz must now stickhandle through this increasingly uncertain environment, engineering a future where both economic growth and higher interest rates co-exist.

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