Budget 2016: Mr. Morneau, it did not have to be this way

Over the past six weeks we have published two editorials almost as personal letters to  members of our federal cabinet. One was addressed to the Prime Minister entitled, "Mr. Trudeau, your honeymoon on foreign policy is over." The other was to Immigration Minister John McCallum who defended maintaining the Canadian citizenship of dual national convicted terrorists entitled, "Mr. McCallum, a rose is a rose, but a Canadian has responsibilities." Sadly, we now have a trilogy of these. This week's message is addressed to Finance Minister Morneau.

Mr. Morneau handed down his first budget. But he had already telegraphed some troubling aspects of it. It is the philosophy of this government that this column seeks to address. What he has signalled - and effected - did not have to be.

Several weeks ago, Mr. Morneau stated, "Let us not deceive ourselves, the Government of Canada will have a deficit for the 2015-2016 fiscal year." This did not come as much of a surprise. Mr. Trudeau had pledged during the election campaign that for the first few years of his mandate he would go into "slight" deficits. He defined "slight" as $10 billion per year.

However, soon after Mr. Morneau's statement, former chief Parliamentary Budget Officer Kevin Page said that the sheer breadth of the Trudeau government's spending promises could not be accomplished without running a deficit of $30 billion a year for all four years of the Trudeau mandate. Within days of that warning, sources from the Finance Ministry were sending background signals that indeed the first deficits may run north of $20 billion. Mr. Page was dead on. It has ended up at $29.4 billion. This could be disastrous

Yes, Mr. Morneau has said that any deficit spending would not be accompanied by general tax increases. But how long can that promise possibly last? When has there ever been a government that has run deficits without commensurate tax hikes? Especially when just days ago Mr. Morneau was again delivering a body blow by declaring that Canada's national debt will rise by $18 billion this year, and that is before any budgetary deficits. As it happens the budget delivered an effective $1.2 billion tax hike to small business, responsible for 80% of new jobs, by throwing away the Liberal campaign promises of lowered tax rates and an EI holiday when young people between the ages of 18-24 are hired.

Whatever one thought of the entire body of legislation of the Harper administration, it's financial stewardship was sound. And we do not mean just during the global financial crisis of 2008-2009. During the past five years Canada's middle class saw it's taxes cut by over $35 billion dollars. We were just starting to breath. And Mr. Trudeau was handed a balanced budget. What will come now is highly uncertain. To change economic direction simply for the sake of changing every policy of the previous government for the sake of political posturing is gross irresponsibility.

When Mr. Trudeau made his deficit commitments during the campaign, he said that the bulk of the extra spending would go into infrastructure and corporate stimulus to encourage job growth. Many observers, including those sympathetic to his agenda, questioned the necessity of the latter. But more than that, this government has already made significant promises to increase spending in the vast multicultural arena that eats up some 15% of our tax dollars depending on the year.  We know, most politicians yearn for this because it's an easy vote-grabbing tactic. But it is not leadership and it is not right. 

What happened today was over $11 billion to first nations and university students, another nearly $2 billion in  multicultural grants, more than $3 billion on creation of "green" jobs and $2.5 billion on something called the "strategic investment strategy" for college grads. The budget even raised the threshold of student loan foregiveness to $25,000. All these items appeal to core constituencies of this government.  

There was also $11 billion in added infrastructure spending as promised, but the targets were not all specified. As an example, not a word on social housing. All military procurement was deferred. The size of the military is frozen. However, there will be a reopening of Veterans Affairs offices and more money for tratment of vets. The budget also introduced a $6400 annual child tax credit based on income. It eliminated the education arts and fitness credits.  The budget raised the guaranteed income supplement for single seniors by up to $945 a year, but nothing for increased seniors pensions that average $5,000 below the Fedral poverty line. That was another major campaign promise that this budget ignored.

EI will be extended by five weeks in "hard hit" areas and the waiting time reduced from 2 weeks to 1. But the government grabbed the $6.5 billion EI surplus and threw it into the general treasury. So it would not be unfair to state that the real deficit is closer to $35 billion. And above all, the budget made it clear that there was no plan to get back to balanced budgets in the mandate of this government.

It is to be sincerely hoped, that the reasons for this deficit are truly based on structural needs of the economy and not political imperatives of partisanship. Mr. Trudeau made three macro economic commitments during the election campaign. First, that his deficit would not exceed $10 billion a year for three years. Second, that he will return to a balanced budget by 2019 (the next election year by the way.) Third, that Canada's debt to GDP ratio will go down every year of his mandate. All three of these commitments have now been discarded. It did not have to be this way.