A RETURN TO FISCAL SURPLUS WILL COME JUST IN TIME FOR THE NEXT FEDERAL ELECTION
Governments at all levels in Canada have been running deficits for so long now that taxpayers may be forgiven for thinking there was ever a time of fiscal surplus in this country. But there was, and all things considered, it wasn’t that long ago. Before the recession took hold at the end of 2008, there was a surplus at the federal level and in many of the provinces. But in an era in which the news cycle is measured in hours, the time separating us from those days of surplus is a long one indeed.
At the federal level, recent months have brought news that there may be light at the end of the long fiscal tunnel through which we’ve been trudging for close to six years. It’s never been a secret that the federal Conservatives plan to balance the country’s books just in time for the next election in the fall of 2015. But as we approach that date the details are coming into sharper focus.
Each of their last several budgets have presented projections that slowly but surely bring the budget from red to black on that timeline. They’ve been criticized throughout this process for failing to adequately explain precisely how they plan to eliminate the deficit, which reached more than $50 billion not very long ago. However, events have largely unfolded in favour of the planned fiscal context: progressively shrinking deficits giving way to a surplus in about a year and a half.
CONSERVATIVE ESTIMATES
In last fall’s economic update, Finance Minister Jim Flaherty revealed the latest news: the surplus in 2015-2016 will be $3.7 billion, almost five times the $800 million he had projected less than a year before in the 2013 budget. Additionally, much of the post-update analysis showed that even the new projection was itself based on a fairly conservative set of assumptions about economic and government revenue growth over the next two years. Despite the upwardly-mobile surplus estimates for the election year on the not-too-distant horizon, it could end up being bigger still.
That potentially “low-balling” future surplus projections by the Conservative government represents the very trick for which the same party vociferously criticized Liberal regimes in the past is a small piece of political irony. That we may soon be returning to a fiscal situation — at the federal level, at least — in which our biggest problem is that surpluses are underestimated means there are many worse places on earth to live than Canada. That is, in case you had any doubt.
A cynic may claim that it is far from coincidental that the deficit will be eliminated in the very year we next go to the federal polls to elect a new batch of MPs. The Conservatives, after all, ran their last campaign on nothing much new, other than a series of high-profile tax and spending promises that were at the time classified as surplus-dependent. Keen to cast themselves as the guardians of the public purse, no new spending would take place as long as there was a deficit to slay. Clearing it in time for the 2015 election means some billion-dollar carrots could be dangled before the electorate just in time for our return to the federal ballot box. What a happy turn of events for the governing party!
So, our fiscal cycle is tied to our political cycle. This shouldn’t come as news to anyone. Is there any carved-in-stone reason why we should return to surplus in 2015 and not, say, 2016 or 2020?
Not really.
The sums — though massive to the individual — represent tiny crumbs of our large and growing GDP loaf. Whether the budget comes in at $3 billion in the black or $8 billion in the red in two years’ time is quite irrelevant in the context of an economy pushing two trillion dollars per year. Irrelevant from an economic perspective; less-so from a political standpoint.
