Budget 2016: more state debt and no restraint

The 2016-17 federal budget handed down by the Liberals tripled the expected deficit from $10 billion as expressed during the 2015 election campaign to $29.4 billion in one year.  Harper was right when he ridiculed the promise as “just three, tiny $10 billion deficits.”  What Canadians are really getting is deficits well into the future with no commitment from the government to balancing the books within their first mandate.  Instead, the Liberals are focusing on holding the federal debt to about 30% of GDP, more or less where it is today.  Since we are returning to spending future generations earnings on today’s consumption, we have a right to scrutinize the assumptions and priorities presented in this budget to determine whether there is value in the extra money being spent, regardless of who is ultimately going to pay it back, if ever.

The budget document runs 271 pages in PDF format, you can download it from the Department of Finance website and read it yourself if you do not trust the media to explain it to you.  To save some time, skip the first 226 pages of infomercials and go right to the annexes that start on page 229.  That’s what I did, and I have the following questions that we all deserve answered.

If the budget is going to stimulate the economy, why is the government discounting the economic growth projections?  The private sector growth projections for 2016 average to a 1.4% real increase in GDP for 2016. Now, if the government really believes it’s budget can have a positive impact on economic growth, why didn’t it work with a higher number for planning purposes?  After all, spending $30 billion more in our economy should be worth a few tenths of a percent in extra growth, right? Instead, the government subtracted $40 billion in economic activity from the private sector GDP projections when calculating federal government revenues for the upcoming fiscal year.  This is where the $6-billion-dollar deficit cushion that the media has been discussing comes from – if GDP under-performs by $40 billion against private sector projections, then the federal government takes in $6 billion less in revenues.  Where is the expression of confidence by the government that it’s measures will produce a positive effect?  

Imagine if economic performance comes in at plan, and the federal stimulus actually adds $30 billion to economic output?  This would result in a deficit about $10 billion less than the $29.4 billion they budgeted for.  So, is there a lack of confidence, or just a desire to under-promise and over-deliver?  But I have another prediction – if the Liberals find that revenues are indeed higher than expected, they will spend the extra money on items like the Bombardier subsidy rather than reduce the size of the deficit.  They may also find other “priorities” to spend extra money on during the fiscal year.  After all, once they have paid the political price of announcing a deficit three times that which was expected, why waste the opportunity by being thrifty?

This was supposed to be the infrastructure investment budget, so where is the money?  The Harper Tories had a $60-billion, 10-year plan for infrastructure renewal.  The Liberals doubled it to $120 billion.  Canada’s economy apparently needs a shot in the arm, so how much of that $29.4 billion in deficit spending is actually going to infrastructure?  Only about $5.4 billion.  That is the total of the housing and infrastructure investment dollars presented in a table on page 255 of the budget document.  What a pitifully small number when you consider how hard the infrastructure crisis was being used to sell bigger deficits in the first place.

The bulk of the new money is going into transfers for current consumption, including more funding for Aboriginal people, the revamped Canada Child Benefit, more generous employment insurance admissibility and payments, and a tax-expenditure in the form of a middle class tax cut.  The hope is that people will spend the dollars and stimulate the economy.  If Canadians use the funds instead to pay down their own record levels of consumer debt, then all we have done is transferred personal debt onto the books of the federal government without the desired multiplier effect to boost economic growth.  This is what economist John Maynard Keynes called “the paradox of thrift.”  The Keynesian philosophy behind this budget is counting on you and I to spend our increased pocket-money in order for the government to meet its GDP-boosting objectives.  If we pay down debt, the economic model produces no benefits beyond a transfer of debt to the state and a resulting burden on future generations. Society does not enrich itself by imposing a burden on its children, but we have put aside that lesson for now.

Where is the money for protecting Canadians at home?  Defence spending for new ships and planes has been deferred years into the future since the government is going to review those programs.  DND is getting an extra $200 million over two years to improve infrastructure and housing on military bases, badly needed funds for sure – but what about perimeter defence on our three coasts, most importantly in the Arctic which is of strategic interest to a whole host of nations, including Russia?  Canada is facing asymmetrical threats and there is only a mention of $77.4 million over five years for cyber-security and other 21st century threats to Canadians at home. We are fully committed to fighting ISIL abroad and the costs are well laid out in the budget document on page 198, but at this point the RCAF can look forward to flying 40-year old CF-18s into the next decade.

Lastly, where are major choices being made on spending restraint?  The Tories had a very effective program called the Strategic Operating Review where they sought to contain waste and moderate spending on the cost of running the government.  They managed to cut $15 billion from discretionary spending and used those funds to help balance the budget.  I did a word search in the budget document and the word “restraint” appears only once, and refers to a period in the 1990s when spending was limited on First Nations initiatives.  Three hundred pages, and only one mention – that speaks volumes on the government’s willingness to hold the line on expenses.

The government’s defenders say that this is what Canadians voted for – well, at least the 39% who voted Liberal. While they certainly voted for a change in style and tone, they did not vote to let loose a new cycle of spend-and-tax that takes us back to 1972, and ignore the hard fiscal work of the Tory years.  As they say, it’s your tax dollars at work – and those of your grandchildren.