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Is Trudeau's ballooning deficit reasonable and acceptable? Federal Finance Minister Bill Morneau announced the federal budget will be brought down on March and the deficit for 2016-17 will be $18.4 billion. But analysts predict it will be more like $30 billion when you add in promised new Liberal spending. Are these numbers acceptable given the current economic decline?  Richard Mahoney, John Capobianco and Marit Stiles debate.


John Capobianco:

Finance Minister Morneau released some financial details this week at the same time as he announced the date for the federal budget, which is March 22nd.

There was a reason why the minister took this step to make this announcement one month before the budget: politics.

The government has come to realize something that the Conservatives kept warning about during the campaign (so did the NDP but no one believed them) and that is that the $10 billion deficit the Liberals campaigned on during the election would actual end up growing if there weren't checks and balances put in place.

The minister affirmed that the deficit will reach $18.4 billion in 2016-17 and $15.5 billion in 2017-18. Along with the Liberals' promise of $10 billion in deficit spending per year for the next three years, these numbers spell trouble.

My friend Richard Mahoney will say that this is needed and he will blame the previous government for creating the shortfall, and I will agree with him on the first point, but not the blaming. In other words, I do agree that with the sluggish economy some stimulus spending is needed - in fact, the Conservatives knew this and created the Canada Build Fund and other related infrastructure programs for this very reason. But here is the difference: the Conservatives had various checks to ensure that the spending was shovel-ready and that spending wouldn't be out of control. The concern here is that there doesn't seem to be a plan for how we will eventually get ourselves out of the hole.


Marit Stiles:

As John notes, Bill Morneau did the political thing when he affirmed the deficit would be larger than anticipated. He surely wasn't looking forward to weeks and weeks of more pounding in Parliament, with repeated questions about how large that deficit would in fact be.

The Liberals shifted easily into repeating that it's not their fault; that the deficit would have been this large no matter which party was in government. And to a certain extent I suppose that's true. But the real issues are whether their intention to push the deficit to $30 billion makes sense and will be "forgiven" by Canadians. Furthermore, if they can't meet their promise to balance the budget in their fourth year, what then?

I'm frankly more interested in exactly where they are going to invest in terms of infrastructure. How much of that investment will actually result in new jobs? How will they set priorities for that investment? And who will have input?


Richard Mahoney:

That was a fine effort by John and Marit to try and score points on a government that just got into office, but it doesn't really hold up to any scrutiny. Blaming the government for a deficit it has not been in office to incur is pushing it, and most Canadians will not see it that way.

First of all, the economic news over the last few months has been tough. Falling oil prices, a falling dollar and layoffs all present challenges to our quality of life and the opportunities for Canadians to participate in the economy.

You may recall that in last fall's election campaign both the Conservatives and the NDP promised a balanced budget. The Conservatives claimed the economy was strong and everything was fine. The Liberals argued the following: the economy was growing too slowly, that it needed stimulus, and that the government would not be able to balance the budget in the short term and so modest deficits would have to be run.

Never mind that Stephen Harper ran deficits for most of his ten years in office (save the surplus he inherited from his predecessor, Paul Martin - the largest in the world at the time). At least the Liberals had the good sense to say we need stimulus, we need to run a modest deficit to help grow the economy and create good jobs. Imagine what contortions the Conservatives would have to be going through now had they won. A balanced budget is not achievable in the short term, as even my friends Marit and John now acknowledge, but their leaders did not have the honesty to say that in the campaign when they ought to have known that and levelled with Canadians about it.

Secondly, as John acknowledges, the economic outlook has continued to decline, confirming that Trudeau was right in the first place to say opportunities are declining for many Canadians and that we needed a long term plan to stimulate growth.

Finally, the good news is that as government is about to introduce its budget to unveil the beginning of that plan. Interest rates are at an historical low, so the cost of borrowing is as low as it can get, and the deficits that Minister Morneau and the government propose to run are not only temporary, they are modest investments when you take into account Canada has an economy worth some $2 trillion.


John Capobianco:

Where do I start with Richard's submission? At some point we have to get off this new government message and actually start taking responsibility for the actions that are taking place whilst the Liberals have been in government. There has been a plethora of policy decisions since this government has been in power which all have some effect on finances - including the refugee commitment.

The Conservatives did promise a balanced budget and they did so knowing full well what the other parties knew about the economic situation, which was slowing down then and has been since. They promised a balanced budget because they had a plan - a plan to spend on stimulus projects across Canada - but they had controls in place to ensure programs had caps, which involves making tough decisions.

Look, no one is against the principle of what the PM and his Finance Minister are trying to do with the stimulus spending; the issue is control and discipline. Certain economists are warning about over-spending now: BMO Chief Economist Doug Porter said, "an overly aggressive fiscal boost could do lasting damage to Canada's finances, casting doubt on the country's hard-won triple-A credit rating".

Richard, I am with you on what the answer is to assist the economy at this stage, but where I differ is that there needs to be a plan to get there - here's hoping the budget has the answers


Marit Stiles:

Well Richard, if you think that I was trying to score points on the government with my comments, you clearly didn't read them correctly. I, in fact, said that it's obviously not just the Liberals' responsibility for the current situation. Yeah, don't need to be a rocket scientist to figure that one out. I do find it fascinating that you harken back to the days of Paul Martin. Yes, I remember him: the Finance Minister who cut more deeply than any other government before. Many - and I would count myself among those who remember those days well - recall how the Liberals balanced their budget on a slash and burn agenda. Fine times.

Anyhow, back to today. If we were going to play the blame game, I think there are many we can hold to account. Some even within our own borders. Take for example the shameful mismanagement of the Ontario economy by successive Liberal governments: scandal-prone, willing to sell off assets or make expensive decisions (to the people of this province: I'm still a bit sore, sorry, that my grandchildren will still be paying for their gas plant fiasco) to fix pesky political issues.

So, the federal Liberals have a decision to make. How are they going to approach this investment they've been elected to follow through on? Where will those dollars be spent? Will they follow the fine Liberal-Tory tradition of pork-barrels politics? Who will be considered most deserving? What will the criteria be for these decisions and how will we truly measure the impact?

We can debate the deficit till the cows come home, but the true measure of success of this government will be whether their investment plans actually leverage real, well-paying jobs and the impact on the economy.  


Richard Mahoney:

I take John's point about the need for a plan on all of this. It is a shame that the last government clearly did not have one, or did not share it with us during the campaign. Just a few months later, we face a slowing economy and a deficit, just like Trudeau said we did. It is easy to say we will not run a deficit; Mr. Harper's time in office shows once again that is a hard thing to do.

Marit may not be a fan of Paul Martin but my point was simply that Harper inherited a huge surplus, and promptly got rid of it by cutting the GST, and then ran deficits for pretty well his whole time in office. Mr. Mulcair and the NDP embraced that balanced budget framework of Mr. Harper's for this year and next. Can you imagine what cutting an NDP government would have to do immediately in order to keep that pledge?  It would harm the economy, slow growth and limit opportunities for middle class Canadians.

The challenge in front of Canadians is a big one. Let's hope the government accelerates investments in infrastructure immediately, both in terms of repair to existing assets (such as desperately needed repairs to social housing, as well as new units, as little has been done in the last twenty years.)  Sewers, bridges, roads, existing transit and longer-term investments in rapid transit and other assets are needed to help Canadians get from place to place, and get our goods to market.

We will need an imaginative mix of these and other investments and I think all of us hope to see the beginning of that plan unveiled in the government's first budget on March 22.  


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