Published: September 19, 2017
Updated: September 20, 2017 7:32 AM EST
It s prudent financial planning to play up your expenses while downplaying your revenues. It greatly decreases your odds of coming up short.
This is what financial planners recommend families do to get their personal budgets on track. It s what more governments should do. But Prime Minister Justin Trudeau and Finance Minister Bill Morneau have picked a really odd version of this accounting method.
I laughed pretty hard reading this headline in Bloomberg News on Tuesday: Canada beats deficit forecast by $5.3 billion on lower spending. Sounds pretty good, no?
A foreign observer would be forgiven for thinking this means Trudeau and Morneau are paragons of the lost art of fiscal prudence. At first glance it looks like we ve done something triumphant, finding billions in savings.
On Tuesday, the finance department annual report presented adjusted figures and our expenses ran in less than predicted and revenues were slightly higher, giving us a deficit of only $17.8 billion. I say only because it was projected this spring to be $23 billion.
But the problem is the government wasn t elected on running a $23 billion deficit. They explicitly campaigned on a ceiling of $10 billion a year. Maximum.
Amazing news everyone! Conservative finance critic Pierre Poilievre tweeted. The deficit is only 80% bigger than the Liberal platform projected! Things aren t so bad after all!
Amazing news everyone! The deficit is only 80% bigger than the Liberal platform projected! Things aren t so bad after all!
Trudeau s campaign promise was always an odd one. Why just $10 billion? And why do you need to run deficits at all? We re not in a recession. Even the godfather of liberal economics, John Maynard Keynes, stresses that deficits are good but only in really tough times. Once you re out of the thick of it, you need to balance the books to prepare for the next time you might need to go into the red.
Now it would have been one thing if Trudeau had itemized the spending priorities that warranted the $10 billion deficit. But he never did. It was just a number pulled out of nowhere on the campaign trail.
Then they discovered once in office that they wanted to spend more, so blew their promise out of the water. Their new numbers were what caused a finance department report from last Christmas to predict deficits until the 2050s.
However, now they ve found they haven t spent it all so yo-yo back to a smaller number. This is good news in the same way that your teen ending a shopping spree at the mall without completely maxing out the credit card is good news you still would have preferred it never happen, regardless of how minimal the final damage.
The problem with all of this is it creates a lack of stability. What will it be next year? Higher or lower than projected? We don t know. There doesn t seem to be any coherent guiding principle.
Thankfully, the economy is doing well. But we ve got no reason to believe it s because Trudeau broke his promise and ran higher deficits. It s more likely in spite of the busybody hands of a government that Canada keeps on innovating and building and selling.
Trudeau told us during the election that what really mattered wasn t the raw sum of the debt but the debt-to-GDP ratio. He had a point. The debt can grow if the economy is growing faster. And his $10 billion a year plan actually projected that ratio going down a healthy 5% over the four-year term.
We re now halfway through that term. Where does the debt-to-GDP ratio sit today? It s hardly moved. Still above 31%, where it was during the election. So much for long-term health.