[Finance Minister Bill Morneau takes part in an interview at finance headquarters in Ottawa on March 24, 2016. THE CANADIAN PRESS/Sean Kilpatrick]
Federal Finance Minister Bill Morneau is on the road, selling his government’s first budget and its $29.4-billion deficit.
Morneau has some work to do.
Government spending so deep in the red bucks a long-time trend in Canada, where balanced budgeting has been all the rage for two decades.
“From the 1990s onward it became sort of well-known in Canadian politics that running deficits was not acceptable. You needed a plan by which to balance the books. You could go into deficit but it was for a short period of time as long as you could demonstrate that you would eventually come back to a balanced budget within a reasonable amount of time,” says Ian Roberge, chairman of the department of political science at York University’s Glendon College.
That previous Conservative government stuck to that premise even during the global recession that began in 2008.
“That seems to have disappeared,” Roberge tells Yahoo Canada News.
The jury is still out.
“I’m not sure the Liberals have completely sold Canadians on it yet,” he says.
For now, “they’re willing to accept the argument that this is an investment, that this is needed; that there are needs in terms of infrastructure; that there are parts of the country where the economy is not going as well as it should and that there’s a need for a more activist government.”
If balanced budgets have fallen out of favour in Canada, the country is on trend.
The U.S. Congressional Budget Office projects a US$544-billion deficit for 2016 — $105 billion more than last year’s shortfall. That amounts to 2.9 per cent of U.S. gross domestic product (GDP), up from 2.5 per cent in 2015, according to the Financial Times.
The U.S. federal government was in the red from 1970 through 1997, posting its first surplus in decades in 1998. The country went back into deficit spending in 2002 and has remained there ever since.
In the United Kingdom, deficits have been the norm for the past six decades.
According to the Telegraph newspaper, in those 60 years the budget has been in surplus just eight times, the last in 2001-02.
For 2015-16, the government forecast a budget of 742 billion pounds with a deficit of 69.5 billion pounds, which is 3.7 per cent of the country’s GDP.
But Roberge warns against comparing Canada to the U.S., whose huge economy can sustain deficit spending much more easily than Canada’s.
He points out that on the weekend, Forbes magazine listed Canada as one of the seven countries most vulnerable to a debt crisis.
And while the federal government has ostensibly balanced the budget in recent years, the same cannot be said for the provinces in the federation.
“If you were to go through the provinces, it’s not as rosy,” Roberge says.
Morneau says his budget is an investment that will pay off in the long run.
“Our plan is about revitalizing the economy and providing support for Canadian families. We know that the challenges we face will not be solved overnight, or by a single budget, but we are taking important steps towards renewing the optimism that comes with knowing we can leave behind a better life for our kids and grandkids,” he says.
He is in Montreal on Tuesday with that message and will take it on the road in the coming days to New York, the British capital and back home.
But ultimately, it could be the reaction of the public and the financial markets in the months ahead that will decide when Canada returns to balanced budgeting, Roberge says.
“One of the things we know from the 1990s is the Liberals did it in part because it was the right thing to do; they also did it because the [International Monetary Fund] was after them, the Wall Street Journal was after them; because investors were after them; because they were being compared to a ‘banana republic,” he says.
Right now, investors appear to be giving government some leeway.
“If financial markets decide at some point that enough is enough, that can change the nature of the discussion.”