Government spending drives up deficit

Canada’s credibility as a money manager took a beating recently when federal finance minister Jim Flaherty cried poor

By Gregory Thomas

Canada’s credibility as a money manager took a beating recently when federal finance minister Jim Flaherty cried poor and forecast four years of bigger-than-expected deficits, with no balanced budget until the 2016-17 fiscal year.

It took another pounding three days later when the Prime Minister announced he intends to balance the budget before the next election.

If the election goes ahead as planned in May 2015, Stephen Harper is basically saying he intends to balance the books by the end of the 2014-15 fiscal year. This is two years sooner than his finance minister expects and the same year Flaherty is forecasting a deficit of $8.6 billion.

“These things aren’t written in stone,” Flaherty explained to Bloomberg News. “The numbers will change.” Certainly Flaherty’s balanced-budget target isn’t set in stone: it’s been moved from next year to 2015 and now to 2017.

And if the date’s not set in stone, Flaherty’s actual deficit forecast is set in quicksand: from a modest shortfall of $300 million in 2015, predicted in the June budget right after last year’s election, to the gaping $8.6 billion hole revealed in mid-November.

The only number that is set in stone is $124.5 billion – the amount Flaherty has added to the federal debt in the last four years. And if the minister and the finance department are to be believed, that number will balloon to $177.4 billion by 2017.

The Prime Minister inexplicably blamed a shortfall in taxation. He told reporters “revenue is obviously somewhat down in recent months because of the recent slowing of the global economy.”

And the PM’s analysis has echoed around the globe: “sinking federal revenues,” “global economic weakness that has cut into tax revenues,” “lower tax revenues for Ottawa,” “falling revenues slowing deficit reduction” – you get the picture. Those darned inadequate tax revenues.

When tax revenues plunge unexpectedly – as they did in 2008 and 2009 – fiscal trouble follows: government needs to make payroll, mail out Old Age Security cheques, keep the navy afloat and cover the interest payments on our massive debt.

Federal revenue fell $6.4 billion in 2008 and $14.5 billion in 2009. With not enough surplus to cushion the fall and rising spending, Ottawa’s deficit in just those two years ballooned to $61.3 billion.

But here’s the problem with Mr. Harper’s story: revenues jumped $18.5 billion in 2010 and $8.1 billion last year, hitting a record of $245.2 billion.

And in recent months? Revenues have continued to rise, up $3.4 billion in just the five months between April and August of 2012. Income taxes? Up. Business taxes? Up. GST? Gas taxes? Employment Insurance taxes? Excise taxes? Up, up, up and up.

So if revenues are going up and not going down, why is the deficit going up and not going down?

The answer, of course, is that spending is skyrocketing. The same week that Jim Flaherty was raising his deficit forecast, Conservative MPs were fanning out across Canada, handing out cheques with that borrowed money: money to pay for new snowmobile trail grooming equipment, new municipal tennis courts and curling rinks, money for corporate welfare for a gluten-free bakery and money to support Canada’s pet-food industry.

In fact, if Jim Flaherty’s newest fiscal forecast turns out to be correct, federal revenues will shatter last year’s record and set a new one of $254.4 billion this year.

If Ottawa had simply managed to freeze spending where it was before the financial meltdown in 2008, instead of embarking on a massive spending spree, we would be sitting on a $25 billion surplus this year, not bracing for a $27.2 billion deficit.

No cuts, no layoffs, no austerity measures: just a request to forego annual increases in wages, benefits and pension entitlements, a pause in the growth of the pork-barreling and the corporate handouts, until Canadians and the Canadian economy could get on their feet again.

It’s time for the Prime Minister and his finance minister to stop searching for lost revenue and do some soul-searching instead.

Gregory Thomas is a director with the Canadian Taxpayers Federation which describes itself as “a  federally incorporated, not-for-profit citizen’s group dedicated to lower taxes, less waste and accountable government.” He lives in Ontario.


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