Of all the policy areas, fiscal policy is arguably the most delicate and must be handled with a certain amount of prudence. It must be adaptable and cognizant of the realities that dictate it as well as what might come as a result of it.
This is likely banal to most voters who excogitate plans to balance their own families’ books; but when one politician’s ambitions override their fiscal responsibilities, the cost is too extortionate even if the promised results are enticing to those easily persuaded by empty slogans. As William F. Buckley once quipped, “Idealism is fine, but as it approaches reality, the costs become prohibitive.”
The reality is now crystal clear as we find ourselves in the predicament we were told we’d be in if the Trudeau government pursued its platform of incautious spending.
Upon receiving his mandate, Trudeau promptly dove into the annual “modest” deficits he promised with his first year deficit amounting to $19 billion, which was 92 percent higher than he anticipated. Nevertheless, he’s maintained that he’s “fiscally responsible.” Because rest assured, “budgets balance themselves.”
For the first few years of his tenure, Trudeau had the advantage of having his ideological soul mate, Kathleen Wynne, in Ontario. Wynne, whose notorious spending rivaled that of Trudeau, bought into the sophomoric fantasy that everything could be free if you just declare it to be. Her spending to entertain this belief was putting Ontario on the path to being $400 billion in debt by 2021.
Whether you approve of Ford Nation or not, people wanted a cure for the economic ailments afflicting Ontario and saw Doug Ford’s austerity as the antidote.
It’s reasonable to have quibbles about Ford’s rather impulsive efforts to accomplish his “efficiencies,” but it must be acknowledged that some limits on the government’s purse need to be observed.
I doff my cap to Ford on this note, and wish I heeded the wisdom of Trudeau’s 2015 opponent when it came to the immoderate deficits that were coming.
The source of our troubles is Trudeau’s faith in the power of the purse which persists if the economy is strong or if it’s on the verge of catastrophe. Considering that he doesn’t preside over a country that’s at war or in a serious recession, his spending is astronomical compared to most Prime Ministers.
Government spending reached new zeniths under Robert Borden and William Lyon Mackenzie King during the two World Wars. Per person spending under Borden rose from $567 in 1913 to $1,240 in 1916 during World War One. While King’s spending during World War Two rose from $966 in 1939 to $6,998 per person in 1943.
Stephen Harper oversaw the highest single year of per person spending since Confederation with $8,711 being the average for 2009. But this was during the global recession, which warranted some sort of Keynesian plan.
Trudeau’s per person spending in 2018 is a mere $72 short of this all-time high, and that’s during a period of stable economic growth. The current circumstances call for an approach resembling that of Jean Chretien’s Liberal government, which slashed per person spending by 16.5% in his three budgets between 1994 and 1996. His brand of supply-side economics emphasized balanced budgets, lowering taxes and improving incentives for business and family investment.
This approach would also put the Trudeau government in a more favourable position to cope with a future recession, of which there have been intimations within the housing market.
In a report for this March, economists at the Fraser Institute offer a shrewd analysis of what may happen to the federal deficit during a recession.
If one were to occur, “government revenues will decline and program spending will increase, resulting in larger deficits (or reduced surpluses).”
The report forewarns that a recession could cause the 2019 deficit to increase from $19.6 billion to “anywhere between $28.2 billion and $34.4 billion depending on the severity of the recession.” Beyond that, a five-year cumulative deficit “could grow by anywhere between $37.8 billion and $65.5 billion.”
With a prognosis so dire, what’s a country to do?
Judging by his uproarious explanation of how taxes work, it’s fair to assume that the only idea Trudeau has in mind is continually taxing the rich into oblivion.
On this question, the C.D. Howe Institute has published a shadow budget to outline some correctives to existent problems that could prove useful.
Some of which include comprehensive reforms like reducing the number of people subject to the highest tax rate by doubling the threshold, alternatives to the carbon tax, and strengthening control over the government’s spending.
I’d urge Trudeau to review this literature, but his obstinacy might make him incorrigible. When it comes to spending, Trudeau’s habits do die hard.