When the Minister of Finance francois-Philippe Champagne appeared before the House of Commons finance committee this week, Conservative MP Pat Kelly tried to corner him with a complicated question disguised as a simple one.
“Minister, in what year will the budget be balanced?” -Kelly asked.
Champagne spoke a few dozen words in response, but didn’t respond, so Kelly tried again. And then again. The discussion led to a debate about the existential nature of an answer.
To be fair to Kelly, it’s not unreasonable to wonder what the federal government’s fiscal trajectory might look like.
To be fair to Champagne, Kelly’s question was also not answered by the platform the Conservative Party presented last spring: a government led by Pierre Poilievre would have run deficits until at least 2028.
Finally, Kelly suggested that, based on a projection prepared earlier this year by the CD Howe Institute, the budget deficit could reach $90 billion as the federal government takes steps to rapidly increase defense spending.
But now Champagne had a question for Kelly.
“Are you suggesting that we should not honor our NATO commitments to defend Canada’s sovereignty?” Champagne asked.
“No,” Kelly responded, “I suggest you answer a question.”
The exchange between Kelly and Champagne ended shortly after and all questions were left unanswered.
The debate over the federal deficit – or, more specifically, the health and wisdom of federal fiscal policy – remains something of a phony war, with little substantive engagement. If, for example, someone has a plan to balance the budget while significantly increasing defense spending, they don’t say it.
But perhaps, with a new federal budget to be presented on November 4A more serious debate is about to break out.
A sudden and controversial warning
The budget conversation received a sudden jolt two weeks ago when the parliamentary budget officer declared that federal finances were no longer in a sustainable position, a fact he framed in terms such as “shocking” and “stunning.” The federal government, he said, was on the “precipice.”
“When will the minimum maximumDid your father stop his uncontrolled spending?” lleader Pierre Poilievre asked the government earlier this month. “Is it when he’s on the edge of the cliff?”
The irony that the budget official’s warning is now attracting attention is that few fiscal hawks seemed to be dissuaded from worrying about the deficit over the past decade, even as the PBO consistently reported that federal finances were, in fact, sustainable: that, despite political concerns about the deficit, the federal government’s debt-to-GDP ratio was still expected to decline over time.
The new warning was based on a projection that the federal government’s debt-to-GDP ratio was now likely to rise over the medium term, meaning that persistent budget deficits combined with slower economic growth would result in federal government debt growing faster than the economy.
But the PBO’s sudden, colorful change in tone was questioned by former budget official Kevin Page, who objected to both his successor’s choice of words and his conclusion about the sustainability of federal finances. Yves Giroux, who was PBO until August, also ventured that the current PBO’s comments were “a little premature.”
Former parliamentary budget officer Kevin Page criticizes acting PBO Jason Jacques for his warnings of a “staggering” and “unsustainable” fiscal outlook last week. Page says Jacques’ language is “simply wrong,” that Canada’s finances are sustainable, and that Jacques needs to retract the comments for the good of the office.
For its part, the federal government can point to a number of fiscal metrics by which it compares favorably with other G7 national governments.
“We have the strongest credit rating in the world, AAA from S&P and Moody’s; the lowest deficit in the G7; the lowest debt level in the G7; the lowest net debt-to-GDP ratio in the G7,” Carney said in the House this month.
But among those calling for new discipline is none other than the Prime Minister himself: “We are going to reduce spending,” Carney said at a conference in Toronto this week, reiterating an intention he has expressed for months.
Are there difficult decisions ahead?
When the federal government releases its budget next month, it will certainly show a deficit, and that deficit will likely be some sort of nominally large figure that will invariably headline the news and commentary. But the budget could also include the first signs of a program overhaul that could ultimately result in the most aggressive spending cuts (or reallocations) in 30 years.
Carney has said that “difficult decisions” must be made. On Friday he said the government would make “responsible and pragmatic decisions.”
Whichever adjective you prefer, the result is potentially the same: some Canadians will not be completely satisfied with the options.
Prime Minister Mark Carney has announced three new measures that will be included in the federal budget next month, including permanent school feeding programs, automatic federal benefits and a renewal of the Canada Strong pass.
As John Lester, economist at the CD Howe Institute, wrote In August, the Carney government’s spending review is actually quite limited. While it could mean more than $20 billion in cuts, it focuses on a relatively narrow subsection of federal spending. It does not include major transfers to provinces, major transfers to individuals, or tax expenditures (the various subsidies and benefits delivered through the tax system).
But by making some “difficult” or “pragmatic” decisions, the Carney government could at least provide some useful clarity: by removing some of the more obvious excesses (e.g. spending on external consultants) and making clear that sharp spending reductions are rarely painless or without consequences.
Despite a decade of concerns and concerns about the federal government’s finances, fueled by the Trudeau government’s decision to depart from the balanced budget orthodoxy of the 1990s and 2000s, there really hasn’t been much serious political debate about any real compensation. And regardless of whether the federal government is actually approaching some kind of fiscal “cliff,” concessions may now be necessary.
Presumably that will be the Prime Minister’s argument: that the cuts (and the deficit) are necessary because, in this exceptionally challenging time, the federal government needs to make significant investments in things like defence, infrastructure and housing. And in that sense, this fall’s budget could finally sharpen a debate that has raged in the most confusing terms for the past 10 years.
Would conservatives make significantly different decisions? Are even deeper cuts necessary? Is it time to talk about generating new income?
In the meantime, if anyone has a plan to balance the budget while bringing defense spending to five percent of GDP, you can present it.
