By 2011, fiscal prudence was a Canadian calling card. A decade of budget surpluses had been rudely interrupted by the Great Recession, but Stephen Harper, the prime minister, was already on his way to restoring them, come hell, high water or a historic collapse of commodity prices.
Yet the finance ministers responsible for that impressive record — Paul Martin, John Manley and Ralph Goodale for the Liberals and the late Jim Flaherty for the Conservatives — had little to teach their peers about transparency.
Countries such as Australia, Sweden and the United States routinely published budget forecasts that looked decades into the future. Canada did nothing of the sort. Martin considered long-term outlooks a distraction. Flaherty and his boss talked about intergenerational forecasts, but hadn’t managed to do one. The Office of the Auditor General took note.
The late John Wiersema, who served briefly as interim auditor general after Sheila Fraser retired in 2011, used the opportunity to advise politicians that more than three decades of public service had taught him that government programs required “certain fundamental elements” to be successful. One of those elements: predictable and stable funding. “Before decisions are made to go forward with an initiative that commits the government to a future course of action involving years or even decades, it is important that decision makers consider all costs, not just the start-up costs,” Wiersema wrote in the introduction to his office’s annual fall report.
The following year, Fraser’s official replacement and current auditor general, Michael Ferguson, presided over a formal review that found the Finance Department tended to assess new policies in terms of years, not decades. Ferguson called on the department to publish long-term “fiscal sustainability analyses” on an annual basis. Finance said it would, and it did, starting in 2013, when Flaherty attached a fiscal projection through 2051 to his autumn economic update.
It was a victory for the auditors. Alas, those dedicated men and women can’t be right about everything. Ferguson’s office said the publication of a long-term budget outlook would improve “fiscal transparency to support policy and parliamentary debates,” and help “Canadians to understand what our future might look like, based on a better assessment of whether budgets are fiscally prudent for the federal, provincial, and territorial governments.” That hasn’t happened.
The Trudeau government’s habit of releasing the long-term fiscal outlook in the days before Christmas is more translucent than transparent. Citizenship needn’t be free of burdens, but only the most committed citizens will find the 2018 report on Finance’s website. That unwillingness to help Canadians understand what the future might look like creates an opportunity for those with an incentive to embarrass the prime minister and the finance minister in the present. When Ferguson said a long-term fiscal outlook would enhance debate, I doubt he imagined dead silence on one side, and ridiculous internet memes about how the budget won’t be balanced until 2040 (!!!) on the other.
We keep avoiding the real issue, which is that demographics keep squeezing Canada’s ability to generate wealth.
It’s fair game for Andrew Scheer, the Opposition leader, to grind Trudeau for abandoning his campaign promise to balance the budget in 2019. But the long-term fiscal outlook is only a rough guide of what’s to come because it makes no attempt to predict human intervention. “Rather than a forecast of the future, these projections are based on long-term developments that can be expected to occur based on current trends and policies and reasonable assumptions,” Finance advised in its first three-decade projection, released under the supervision of the previous Conservative government. So it might in fact be a couple of decades before we see another federal surplus. It could be even longer than that if President Donald Trump chooses to ramp up his trade war with China. Or, if the four most optimistic forecasters in the pool of private-sector economists that advise Finance are correct, then the budget will be balanced by 2024, according to the latest long-term outlook.
Wiersema and Ferguson wanted to encourage an intelligent conversation about fiscal policy, not perpetuate the tendency of Canadian politicians and parliamentary reporters to equate successful economic oversight with budget surpluses. But we keep avoiding the real issue, which is that demographics keep squeezing Canada’s ability to generate wealth.
The story in the latest projections is that there are now more Canadians aged 65 and older than there are children under the age of 15. That matters because economic growth mostly is determined by the number of workers and productivity. Policymakers should be focused on offsetting the decline of the former and boosting the later. Labour productivity of 1.7 per cent over the next few decades, rather than the current rate of around 1.2 per cent, would increase nominal gross domestic product by 17 per cent above the current baseline by 2055, according to Finance. If immigrants accounted for one per cent of the population, instead of 0.75 per cent, nominal GDP would be 10 per cent higher. None of Finance’s other hypothetical shocks register such magnitude.
So if the Conservatives want to make the 2019 election about Trudeau’s failure to deliver a surplus, they should explain how a balanced budget will increase nominal growth. If they say the private sector will take care of it, you might ask why productivity remained weak even when federal budgets were strong.
The current government will justify its spending as an attempt to boost productivity and to get more people working. When they do, someone should ask them how they know the infrastructure money will make the economy more efficient. Or why they chose to boost benefits for families with children and to cut the tax small businesses pay on income? Both measures may have their merits, but neither does much for productivity or the labour force.
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