Tuesday鈥檚 fairly placid federal budget is built on deficit financing. The next election is two years away, and Finance Minister Bill Morneau is likely saving the good news for later.
There are several top-ups of existing programs, including child care, and support for First Nations and working women. There is also a commitment to legislate pay equity in sectors regulated by the federal government.
And a task force is being set up to consider a national pharmacare program, although here, perhaps, an additional step might be considered. Canada pays some of the highest drug prices in the world, due in part to our limited purchasing power.
A consortium of hospitals in the U.S. intends to create its own company to manufacture generic medications. Generics are drugs no longer under patent.
This is something Ottawa and the provinces might investigate. Some of the most expensive medications on the market are generics. We could save billions by making these ourselves. At a minimum, it would strengthen our bargaining position with the industry.
However, the principal issue raised by this budget is the government鈥檚 continuing reliance on deficit financing long after the 2008 recession. The shortfall this year is projected at $18.1 billion, followed by annual deficits well over $10 billion, as far as the planning horizon reaches.
The stated reason is that Ottawa is trying to stimulate the economy by pumping borrowed dollars into the marketplace. Morneau describes his budget as a 鈥済rowth鈥� strategy.
Yet is there any good reason to believe this works?
The federal government and most provinces began annual deficit financing in the late 1960s and continued until the mid-1990s.
When they started, the national unemployment rate stood at three per cent. By the mid-鈥�90s it was 12 per cent. There were ups and downs, of course, but there is no obvious correlation between the amounts borrowed and the percentage of 91原创s unemployed.
The same is true of the country鈥檚 GDP 鈥� the main measure of growth in the economy. GDP grew at a snail鈥檚 pace while deficits were used, then trebled when surpluses were regained.
Many factors affect unemployment and GDP growth. Indeed, government spending is such a small component of the economy that it鈥檚 questionable how much role deficits can play.
However, Morneau has an additional justification for his strategy. The previous government, under former prime minister Stephen Harper, starved public services to balance the budget. Harper achieved his goal, but at the cost of underfunding important social programs.
Morneau can argue, with some justification, that he is merely righting the ship. He plans to increase spending by $21.5 billion over the next six years. Our provincial government made the same case for increased spending in last week鈥檚 budget.
Nevertheless, if stimulating the economy is one of Morneau鈥檚 priorities 鈥� as it should be 鈥� there are other options beside deficit financing he might consider.
Starting last year, the American federal government cut taxes and reduced the burden of regulations. Since January 2017, the U.S. stock market has climbed 29 per cent 鈥� a measure of business confidence. Over the same period, Canada鈥檚 stock market is up just three per cent.
It has rightly been pointed out that the American tax cuts will raise that country鈥檚 already huge debt burden. There are arguments on both sides about how best governments can increase economic growth.
However, Morneau shows no sign of being open to different approaches.
That creates an opportunity for the Conservatives, since they can argue the Liberals promised a balanced budget by the next election. If Morneau stays the course he has laid out, that promise will be broken, and voters are sensitive about such matters.
