A bold prediction for the upcoming budget more debt: Neil Macdonald

I'm going to confidently make a few predictions about next week's federal budget.

It will bang on, as usual, about helping the middle class and "those working hard to join it," meaning people who vote Liberal and those the government hopes can be persuaded to vote Liberal.

The government will redistribute wealth in order to win re-election.

It will make a big fuss of creating a "gender-equality framework," much of which, one suspects, will just be happy Trudeau-era prattle.

By the federal government's own reckoning, it pays men nearly nine per cent more than women.

Now, I'm just guessing, but I suspect next week's budget won't correct that; the solution is just too expensive, unless of course the government adopts a solution like gangster-industrialist Tommy Shelby's in Peaky Blinders. Faced with a uniondemand for pay equity, Shelby proposed increasing women's wages by five shillings and cutting men's wages five shillings, thereby instantly eliminating the ten-shilling gap (the union called a strike).

And, of course, the government will increase the national debt, probably by $20 billion or so. That is an absolute certainty.

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The reason is simple: like just about every other government in modern history, this government lives beyond its means.

The Liberals are so good at taxing everything in sight think carbon taxes that don't change consumer behaviour, or nascent "infrastructure bank" fee-for-service schemes, or tax increases for higher-income earners, or targeted crackdowns on, say, farmers and doctors that they have probably reached a saturation point, and it still doesn't provide enough to satisfy their spending urges.

So they borrow, steadily piling up more debt. It's a tremendously appealing political solution, for obvious reasons: the government harvests credit and votes for spending now, while some other government down the road is stuck with the reckoning.

In Canada, these are the facts:

The federal government's debt is about $650 billion right now, or about 30per cent of our nominal gross domestic product, which sits around $2.1 trillion ($1.8 trillion in real dollars).

Last year, the Liberal government overspent, but, because of a relatively strong economy, by less than anticipated: about $18 billion. That's a deficit of slightly less than one per cent of our gross domestic product.

None of which is particularly alarming, in itself. The economy is growing faster than Ottawa's debt, meaning the debt as a percentage of the economy is shrinking, even as it grows in absolute dollars.

Borrowing during booms

"It is not possible to say that the feds are putting the fiscal house at risk," says McGill University professor Chris Ragan, who studies such things, and who would be unbothered if the government continued to run the sort of deficits it's been running for several years to come. Which it will.

But why does the government need to borrow at all, especially with the economy in relatively good shape? Didn't Keynes instruct that deficits are necessary in recessionary times, so long as they are offset by surpluses during booms?

On that question, Ragan is less definitive. The government doesn't have to borrow, he replies, it just chooses to.

Which raises a basic question: is there anything intrinsically wrong with governments accumulating debt?

To conservatives, the answer is an emphatic hell yes.

Federal budget

7 years ago

Duration 2:24

CBC's Margo McDiarmid on the unveiling of the federal budget by the month's end

Conservative parties, which for some incomprehensible reason enjoy a reputation for greater fiscal responsibility than parties on the left, characterize debt as an immoral indulgence that places heavy shackles on future generations.

Often, they draw an analogy to unmanageable credit card debt, which, if neglected long enough, becomes unrepayable during a person's lifetime, sapping income and destroying families.

Donald Trump and Congressional Republicans made debt a central campaign theme in 2016, blasting Barack Obama and the Democrats for taking the national debt to nearly $20 trillion, an amount so vast as to almost defy rational quantification. A national disaster, to quote Trump, that had to be dealt with urgently.

Republicans in Congress, citing fiscal probity, actually chose to shut down government during Obama's time in office rather than raise the government's borrowing limit.

But once in control of Congress and the White House, Republicans' concerns about debt suddenly vanished. Trump, it turns out, is a borrow-and-spend politician who seems to have given up on ever reducing debt, and his hardline Republican allies in Congress are either silent or cheering him on, because he's spending on stuff they like.

Canadian spending

It is impossible to know how Conservative leader Andrew Scheer would spend he wiped all platform positions off his website the moment he won his party's leadership. But the Harper government, of which he was a part, struggled with borrowing, too.

Aaron Wudrick, director of the fiscally conservative Canadian Taxpayers Federation, doesn't bother to make the moral argument on debt, or to claim large-C conservative superiority. In fact, he acknowledges that the only Canadian politician in half a century to seriously tackle spending and debt was Liberal finance minister Paul Martin, who turned a colossal debt into a surplus back in the mid-'90s.

But, says Wudrick, debt tends to grow until it must be reckoned with, and the longer governments wait, the more painful the reckoning.

Further, he points out, even at the ultra-low interest rates the government enjoys right now, it pays roughly $25 billion a year in interest on the federal debt, or, as Wudrick likes to characterize it, quite a bit more than we spend on the military.

Wouldn't it be nice to be able to spend that on, say, education? Or, with an aging cohort of boomers, health care?

Furthermore, if interest rates rise to, say, six per cent or so, the cost of servicing debt would surge ferociously, crowding out virtuous spending even further. Could we again get to the situation Paul Martin found himself in? Believe it. And the fact is, we don't have to.

Incidentally, I've excluded it for the purposes of this column, but don't forget all that debt provincial governments have accumulated.

Combined with Ottawa's obligations, it adds up to an estimated $1.4 trillion, a far more serious figure. And there is ultimately only one taxpayer, and he or she is on the hook for the whole works. Eventually.

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