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Do Canadians care about a balanced budget anymore? Finance Minister Bill Morneau says his government will try to balance theirs in "about" five years. This means the Liberals may break their promise to bring the budget to balance. But do Canadians really care very much about balancing the budget anymore?  Richard Mahoney, John Capobianco and Kathleen Monk wrestle with that.

 



Kathleen Monk:

Well, I am pretty skeptical that Finance Minister Bill Morneau will be able to keep his promise to balance the nation’s books in five years. Even if the Liberals use what Kevin Page called the “fudge line” it isn’t clear how the Liberals can balance the budget without raising new revenue.

But irrespective of what Canadians think about the country’s balance sheet (whether it is balanced or not) I think most Canadians are concerned about the country’s economy. They wake up each morning thinking about their own personal finances and want to know how the government is working to make their lives better.

Many people – including myself – question why the Trudeau Liberals are continuing with many of Stephen Harper’s cuts and why they have refused to look at introducing new tax measures such as closing stock option loopholes and raising corporate taxes.

I think Canadians care about public services and want to ensure they are properly funded. So maybe Canadians aren’t worrying about balancing the budget but they are concerned about the country's fiscal envelope, and ability to invest in the programs all Canadians need.

 

John Capobianco:

I share Kathleen's skepticism about the Minister's claim to balance the books in five years. I don't think the Minister really believes it himself.

The challenge here is that the Liberals campaigned on a promise to keep deficits modest at $10 billion a year and we have seen that not only double but triple in size, and that was just since the election. So no wonder there is skepticism about the budget being balanced in five years.

However, polls since the budget show that Canadians are not particularly fussed about the deficit and, in fact, are generally accepting of the document. The reason is that this is a spending budget; huge amounts of money have been earmarked for social housing, infrastructure, revamping the childcare program and over $8 billion going to Aboriginal Peoples for investment in schools and infrastructure, which is badly needed.

So there is plenty of money being spread around which is why most Canadians see this budget is acceptable. No one would question where some of the money is going, but the money is heavily borrowed and reliant upon our economy and oil prices recovering quicker than most economist predict.

That is why the federally elected Conservatives and other fiscal conservatives view this budget as bad for the taxpayers and are skeptical that it will be balanced in five years.

 

Richard Mahoney:

This is an interesting debate. Following the experience of Paul Martin's leadership in the early to mid-nineties, when Canadians got rid of a crippling debt problem, I think many politicians in this country assumed that Canadians had a deficit phobia. That is to say that they would not tolerate governments running deficits.

The problem is that our economy suffered challenges such as slow growth, low commodity prices for our natural resources and the weakening dollar. This led to many prominent economists in Canada and around the world to call for smart investments, financed by manageable deficits, in order to help grow our economy and pay for the kind of society we want to live in.

The surprise to many politicians and political parties is that Canadians themselves had a pretty sophisticated view of this. In the last election campaign, both Mr. Harper and Mr. Mulcair ignored the advice of many our leading economic experts, and ignored the signs of a weakening national balance sheet, and foolishly promised balanced budgets. That overlooked the evidence of reduced revenues, the logic of economic experts (that a $1 trillion dollar economy could handle modest deficits) and the views of the majority of Canadians that the country needed to make those investments.

That debate is now playing itself out in the Trudeau government's first budget, which makes those choices Canadians said they wanted.  

 

Kathleen Monk:

I think that both Richard and John are right in noting that public opinion has moved on deficits from where it was in the ‘90’s. But what is surprising about such a heavy-spend budget is that the Liberals still managed to shortchange so many Canadians on their campaign promises: First Nation children, seniors, youth, small businesses, caregivers - the list goes on.

The question that reasonable Canadians might be asking themselves is: Why are the Liberals so willing to dip into the EI fund - a fund that Canadian workers have paid into - but the Liberals are unwilling to ask corporations and CEO’s to pay a little more? The Liberals have even refused to protect the EI fund in the future and won’t guarantee that they won’t dip into it again.

There's no doubt that much of the spending in Budget 2016 is needed and welcomed by Canadians but government should be judged on the choices it makes on spending and raising revenue. And we need to evaluate this budget on whom it helps and who gets left behind.

 

John Capobianco:

Richard, balancing the books is about choices and they are never easy for governments to make, but it can be done, as was the case with Mr. Martin who you often mention on these pages. He had a choice and decided to balance the books, but that choice involved cutting transfer payments dramatically to certain provinces, especially in the health care sector.

Now, that was a long time ago and the economy went through some significant down cycles, which the previous Conservative government handled masterfully given the times. But it did mean infrastructure spending and going ahead with "shovel-ready" projects to maintain jobs and keep the economy going. That also resulted in deficits.

But the difference is that the previous government had a plan to balance the budget, which it did.

Finance Minister Morneau's budget is a heavy-spend budget that hits all the areas that the PM campaigned on and had mentioned in his Throne Speech - to his credit.

However, it is easy to get into deficits and a lot harder to get out. Canadians will be patient as long as they see jobs are being created or sustained and their cost of living doesn't get worse as a result of an uncertain and unfocused economic strategy.

 

Richard Mahoney:

Some of John's comments criticizing the government for not balancing the budget are a bit rich. While Mr. Harper talked about balancing the budget, he didn't really do it in the ten years he was in power.

He inherited a huge surplus in his first two budgets. By the time of his third, reduced revenues due to his GST cut kicked in, and the Conservatives went into deficit, from which they really never emerged despite the cuts.

While this year's deficit is in part due to the new investments Mr. Trudeau campaigned on, a large portion of that deficit is inherited directly from Mr. Harper's failed fiscal framework. So even he didn't achieve the mantra of balance that he sometimes preached.

The real test is set out by Nobel Prize winning economist Paul Krugman, in this and many other articles in the New York Times. Krugman argues that the U.S. (which carries a higher debt and deficit load than does Canada, by any standard) benefits from debt when it is used to pay for useful things and that we should do more of that when the price is right.

We need the investments in public transit, in our First Nations, in our green infrastructure. And the cost of debt has never been and will never be cheaper. That, in essence, is the case for running deficits/taking on debt in these times.

Most economists advocate some version of that approach. Canadians agree with that approach, as witnessed by the results of the campaign, and the support in public opinion since then.

So, for now at least, it is both good policy and good politics.  

 

Richard Mahoney is a lawyer with deep experience in politics and governance.  He is a former senior advisor to the Rt. Hon Paul Martin, a former Campaign Chair and President of the Ontario Liberal Party. John Capobianco is a Senior Partner and National Public Affairs Lead at FleishmanHillard. He has been a Conservative strategist with over 30 years of political activism at all three levels, including as a former federal Conservative candidate. And Kathleen Monk is a strategic communications professional with over 15 years of experience in media, government, and the non-profit sector. She is a frequent media commentator on politics and public affairs. 

 

 

 

Posted date : March 30, 2016
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