Contrary to what Finance Minister Bill Morneau says now, the deficit limits set during the election campaign were crucial. If the Liberals can’t meet them now, they owe voters an explanation of what they intend to do.CHRIS WATTIE/Reuters
This was the Liberal prebudget two-step. First, the government warned us things are dire: The economy is sliding faster than projected. Then, Finance Minister Bill Morneau, shirtsleeves rolled up, stepped in to promise an undeterred Liberal government will use stimulus spending to save the day.
The deficit will be bigger, much bigger, than promised, even before the Liberals roll out their billions of dollars' worth of promised spending. They're telling us now, a month before the budget, so the big number is blamed on the vagaries of the global economy and doesn't become the big news on budget day – when they want their initiatives to make the headlines.
Now, Mr. Morneau insisted, it's doubly important to forge ahead with stimulus spending. And at the same time, he rewrote the history of the past election, insisting voters unequivocally chose stimulus spending over cuts – implying those other promises to cap deficits at $10-billion and return the budget to surplus after three years were just details.
Monday's message wasn't about the economics of deficits but about their politics.
The first part was pumping up the warning that a weakening economy means a much bigger budget deficit, $18-billion, even before the Liberals add in their promised spending in next month's budget. And while they were at it, the government padded the figures with a $6-billion cushion – projecting a higher deficit now, after all, makes it more likely they can beat it in the end.
The new deficit figure is a lot worse than the $3.9-billion reported in November, and only $2.3-billion of the difference is due to new measures launched by the Liberals since they took office. Most of it can be blamed on a slowing economy.
It means, Mr. Morneau said wistfully, that the "starting point" for the first Liberal budget is "much further back than we thought." But that's partly because he moved it.
The economic outlook is deteriorating. Private-sector economists surveyed earlier this month reduced their growth projection for this year from 2 per cent to 1.4 per cent.
But Mr. Morneau's Finance Department decided to be far more pessimistic than the economists, factoring in an extra $40-billion hit to the economy. That pumped up the deficit forecast from $12-billion to $18-billion – giving Mr. Morneau $6-billion in padding. It will be easier for the minister to meet his deficit target now.
Part two was the Liberal message that the deteriorating outlook is more reason to move ahead with stimulus spending, above all other considerations. Mr. Morneau repeated that doggedly at a town-hall event in Ottawa's working-class Vanier neighbourhood, making clear that the Liberals won't pull back on their spending promises. That means roughly another $10-billion will be added to the deficit, so the total will come close to $30-billion.
There should be no shock. If you see reason to spend to boost a slow economy, you'll see even more reason for stimulus when the economy weakens further. Many economists believe Ottawa should run deficits now. Even a $30-billion deficit, about 1.5 per cent of GDP, is not big by international standards.
But Mr. Morneau's single-minded insistence that only the invest-in-growth message matters was an effort to use lousy economic news to reframe the politics.
What about Justin Trudeau's promise that the Liberals would only run modest deficits of no more than $10-billion? The weaker economy has blown that out of the water. But Mr. Morneau refused, repeatedly, to even address questions about how the government will keep deficits under control or whether it had a plan to balance the budget one day.
Contrary to what Mr. Morneau says now, those limits that the Liberals set during the election campaign were crucial. They reassured voters. They were part of the bargain. If they can't meet them now, they owe voters an explanation of what they intend to do.
Instead, Mr. Morneau put bad economic news to use in moving political goalposts – not only to argue that the Liberal stimulus prescription is more needed than ever, but to slip the shackles of balanced-budget deadlines and deficit limits, and set a new deficit target that's easier to beat.
Campbell Clark