At the start of the 2019 election campaign, most political commenters did not see the “deficit” becoming a major issue in the election. The reality is that the federal government has neither a deficit nor debt problem. According to the just released Annual Financial Report  (AFR), the deficit for 2018-19 was $14 billion or just 0.7% of GDP. The debt-to-GDP ratio is the lowest among G-7 countries. 

However, going forward, the deficit in the short term is much higher. The March 2019 Budget forecast a deficit of $19.8 billion for 2019-20; the Parliamentary Budget Office (PBO) is a bit more pessimistic, forecasting a deficit of $20.7 billion. However, both these forecasts are now far too low.

In April 2019, the Government announced an agreement with the province of Newfoundland and Labrador to provide a one-time payment of $1.9 billion under the new Hibernia Dividend Backed Annuity Agreement. In addition, in September 2019, the Canadian Human Rights Tribunal ordered Canada to compensate First Nations’ children and their families impacted by the on-reserve child welfare system.  This liability could range between $2 billion and $4 billion. If sufficient funds have not been set aside in previous budgets, which appears to be the case, the deficit for 2019-20 could be $4 billion to $6 billion higher than current estimates.

To make matters worse, there are major short- and medium-term economic, political, and financial risks to worry about. These include tensions in the Middle East, talk of recessions in several major developed economies, Brexit, and the trade war between the United States and China. In addition, the USMCA has still to be approved by the U.S. Congress and the Canadian Parliament.

The most recent (June 2019) PBO fiscal projections show a deficit of $23.3 billion in 2020-21, falling gradually to $9.0 billion in 2024-25 and to $0.2 billion in 2028-29.  The federal debt-to-GDP ratio is expected to decline continuously over this period, from 30.8% in 2020-21 to 25.0% in 2028-29.

We are only a couple of weeks into the election and all parties are making major policy announcements daily and the costs are beginning to add up rapidly. So what does this all mean for fiscal prospects? How much will the promises made by political parties during the election cost taxpayers, and how will they be paid for?

After only two weeks, Mr. Scheer’s election proposals amount to over $7 billion in 2024-25 – Ms. May’s likely even more.  To balance the budget in 2024-25, Mr. Scheer would require at least $16 billion of restraint measures. This will be major challenge for Mr. Scheer. To make the challenge more difficult he has committed to ensuring that the Canada Health Transfer and the Canada Social Transfer continue to grow. But he has said nothing about the other transfers to provinces, especially equalization. In addition, we don’t know if he is he ruling out cuts to major transfers to elderly benefits, employment insurance benefits and children’s benefits.  If all these transfers were also exempt then any expenditure cuts would have to be found in direct program expenses, which are projected to total $158.5 billion in 2024-25.

But this component of program spending includes defence expenses, international assistance, and transfers to First Nations, student loans, and assistance to farmers, among others.  Eliminating a $16 billion deficit in 2024-25 would require a 10% cut to these programs. This deficit number is likely to become even larger in the coming weeks.

These expenditure cuts are not going to happen; just ask Prime Minister Harper. Mr. Scheer will not want to spend the next four years following the pointless fiscal strategy of his predecessor. Nor, however, will he want to increase taxes. Perhaps he will decide, if elected, that Prime Minister Trudeau was right all along. Why worry about the deficit as long as the debt burden is falling?
Prime Minister Trudeau is in the enviable position of not having to worry about the deficit implications of his election promises since the Liberals are not committed to eliminating the deficit any time soon.  Mr. Singh and Ms. May have indicated that increasing taxes on the wealthy, eliminating business subsidies and increasing the statutory large corporation tax rate will finance their promises. Good luck to them.

There are other fiscal management issues besides the “deficit numbers” that should be of concern to voters. They all boil down to an issue of trust. Which, if any of the political parties, can be trusted to be accountable and transparent when it comes to fiscal management. The real answer, unfortunately, is probably none.

Except for Paul Martin, commitments to deficit elimination by a specific date aren’t worth the paper they are written on. Trudeau got rid of his election promise when he realized the economic outlook in 2015 had worsened significantly since the election. Earlier this year Mr. Scheer committed to eliminating the deficit in his first three years in office. It didn’t take him long to drop this commitment when he realized first, that he couldn’t do it, and second, that he didn’t need to do it, since the federal government does not have a deficit or debt problem. Mr. Scheer is now committed to eliminating the deficit “in a responsible way over five years”. As noted above this commitment, whatever it means won’t last long.

In the 2015 election, the Liberals committed to never using budget omnibus bills. But once elected, Prime Minister Trudeau and Finance Minister Morneau both became big supporters of omnibus bills in their budgets. If the Liberals had actually fulfilled their election promise not to use budget omnibus bills, then perhaps there would have been no SNC Lavelin “scandal”. We can expect the Liberals to continue to use budget omnibus bills should they get re-elected.

So far Mr. Scheer has said nothing about omnibus bills and probably won’t unless asked. His predecessor, Prime Minister Harper was famous for his budget omnibus bills and there is no reason Mr. Scheer would not continue to use them. Even if he said he wouldn’t, no one should believe him.

Finally there is the issue of fiscal transparency during the election. In the 2016 Budget, the PBO was given the authority to cost the proposed election initiatives of the political parties. The Conservatives, the NDP and the Green parties have all taken the PBO up on this offer.  For some mysterious reason, however, the Liberals have decided that only their main election initiatives would be submitted to the PBO for costing. Even then, the PBO cannot release them until the complete Liberal platform is released.

The Conservatives and NDP are also delaying the full presentation of the costs of their election promises.  The Greens have delivered their full platform but without any costs.  However, they have indicated that they would do so once the PBO has completed the work.

The real issue is whether the political parties will release their fully costed policy platforms sufficiently in advance of the election to allow adequate study, discussion and commentary.