OUR GRANDCHILDREN WILL BE REALLY ANGRY WITH US
For the past several weeks, politicians and the media have been arguing over Joe Oliver’s decision to delay the budget until after March 31st. If the Finance Minister keeps to his word, the earliest the budget could be tabled would be in the week of April 20th. The later the budget is tabled, the less time there is to ensure timely passage of any accompanying legislation, without the use of time limits and closure.
The delay means the budget will likely be an information document. The 2015 budget was actually delivered last October, when the Prime Minister announced income splitting and an increase in the Universal Child Care Benefit.
The political debate over the implications of delaying the budget has been going on for some time. It would be helpful to Canadians if other more important political debates were begun.
For Canadians, it is important that our political parties start discussing and debating the policy actions a “new” government should take to respond to the International Monetary Fund (IMF) observation, that the global economy, and therefore the Canadian economy, could be entering a long period of economic stagnation, characterized by slow growth, high unemployment and increasing income inequality.
Call us naïve, but this is the economic debate that Canadians deserve, and our political leaders should be having, in the lead up to the 2015 election.
Last fall, confronted with the prospect of global economic stagnation, the G20 recommended a major global infrastructure initiative to raise global output by 2 per cent over the next five years.
The IMF had recommended that G20 governments finance this initiative through deficit financing and borrowing, arguing that with historically low interest rates, “efficient” public infrastructure could easily pay for itself.
Finance Minister Joe Oliver must have slept through that G20 meeting and missed the IMF report. Just recently he stated; “to address the point about avoiding the deficit, we think it’s important to avoid transferring the debt to our children and our grandchildren, that intergenerational transfer is unfair.”
Mr. Oliver either doesn’t understand, or refuses to understand, the broader issues of intergenerational transfers.
Mr. Oliver, as does the Prime Minister, views all deficits as bad and all debt as bad. According to Joe Oliver, if governments run deficits and leave debt to our children, our grandchildren, our great grandchildren, and so on, then we are behaving in an “unethical” manner. You get the picture.
According to Joe Oliver, most governments in Canada since Confederation were unethical because they ran deficits. This includes borrowing to finance the transcontinental railways, which built our country, and the St. Lawrence Sea Way, which connected our western provinces to global markets. It includes all governments since WWII, except those of Jean Chretien and Paul Martin.
It certainly includes the Harper government. After inheriting a surplus of $14 billion, they quickly turned into a deficit by cutting two points off the GST. The Conservative government has run a deficit since 2008-09 and, has left future generations of Canadians additional debt of more than $150 billion.
Lets not stop with Canada. According to the Mr. Oliver, and presumably the PM, all governments in advanced economies (e.g., G7 countries, G20 countries, and the EURO area) are unethical, because they all run deficits and have no interest in eliminating them. What they are striving for are sustainable fiscal structures, but this does not mean eliminating all deficits or reducing debt.
What Harper and Oliver refuse to understand is that not all deficits are bad and not all debt is bad. Having a balanced budget is not that important is not the be all and end all of fiscal policy. Having a low and relatively stable debt burden, however, is the be all end and all. Harper’s commitment to table balanced budget legislation, probably before the election, shows how little he understands public finance.
Unfortunately, most Canadians seem to have drunk the conservative fiscal “grape juice” that all deficits and debt are bad and that any government that would run a deficit, no matter how small, is not a government to be trusted with managing the country’s finances.
Why is this? Probably, because the NDP and the Liberals also “agree” with this. When politicians are asked if they would be prepared to run deficits if that would help the economy through this difficult period, they all run for the nearest exit.
Let’s be clear about one thing.
The global economy is not in a good place and neither is the Canadian economy, despite what the Prime Minister and Joe Oliver say. Economic growth has been falling since 2010 and the economy has been operating below its potential since then; employment growth, particularly full time employment growth has struggled; in 2014 only 121,000 jobs were created; employment growth has not kept up with population growth; labor force participation has declined to its lowest level since 2000; long-term unemployment has increased; the unemployment rate remains stuck at just under 7 per cent, and youth unemployment is at 14 per cent; business investment has stagnated; and Canadians are losing confidence in their economic future.
The Harper government’s “austerity” led growth strategy of deficit elimination; smaller government, and policy “abstinence” has failed dismally.
What Canada needs is a federal-provincial strategy aimed at strengthening productivity growth, employment growth, and economic growth. Canada needs to follow the advice of the IMF and create a National Infrastructure Program to prepare Canada for the rest of this Century.
All political parties talk about helping the middle class, whoever that is, by giving them little tax breaks. The best thing you could do for the middle class would be to give them well paying sustainable jobs. A National Infrastructure Program would do that.
Forget the Conservatives. They decided last October to throw away most of the projected surpluses on tax cuts that were not only unfair to most Canadian families, but also contributed nothing to economic growth. Their fiscal policy has been driven solely by the goal of eliminating the deficit while at the same time delivering pointless “boutique’ tax breaks. They are definitely not interested in more infrastructure spending, arguing the federal government is already doing enough, despite pleading from the provinces and municipalities that much more is needed.
The NDP also aren’t interested. They have already announced that their top priority is a national childcare program, not a bad idea actually. But they too have an aversion to deficits and debt financing. They would prefer to raise corporate taxes, not a good idea actually. They have made a number of small tax announcements to support innovation and small business, but they hardly constitute an economic growth strategy.
The Liberals, on the other hand, have made increased infrastructure spending their top priority. But they too have an aversion to deficits and debt financing. In a well written article in the National Post last week, Scott Bryson, the Liberal Finance critic, set out the arguments for a National Infrastructure Program. The words “deficit” and “debt financing” do not appear anywhere in the article. Instead, the Liberals are looking at “innovative” ways to get private and public pension funds to undertake infrastructure investments. It remains to be seen as to whether any of these will be up to the challenge.
Running deficits and borrowing to finance the operations of government (i.e., the cost of delivering programs and services) to the benefit of the current generation is not a good idea. The operating budgets of governments should be balanced over the cycle.
However, government investment in infrastructure is a different matter. This is spending on capital (highways, bridges, sewer systems, subways and LRT systems, hospitals, universities) that will be used over the next 10, 20, 30 years by future generations of Canadians. Future generations should help pay for them and that's why governments today should be issuing 10, 30, or even 50 year bonds at currently ridiculously low interest rates to finance needed infrastructure.
The federal government is in excellent fiscal shape. The deficit is virtually gone and the debt burden is low and projected to decline over the medium term. The same cannot be said for provincial governments. The onus is on the federal government to take the lead even if most infrastructure is provincial and municipal.
As we have said in previous articles, this can be done while at the same time maintaining a sustainable fiscal structure.
What Harper and Oliver can’t get into their heads is that what is unethical is leaving future generations a crumbling infrastructure that they will have no choice but to finance at much higher interest rates than today. That is unethical, but it can be ignored, because most of us, including Harper and Oliver, will not be around to accept responsibility.
Twenty years from now our grandchildren will be really angry with us, and they will have every right to be.