Some commenters had a bit of a panic attack at hearing the news that the Liberals’ inaugural budget contains a $29.4-billion deficit for the coming fiscal year. The Conservatives have gone so far as to call it a “nightmare,” noting that projected deficits through 2020 now exceed $100 billion.
But compared to the sorts of deficits Canada used to run, this new deficit barely qualifies as a bad dream, let alone a nightmare.
Economist Jordan Brennan of Unifor put the shortfall in perspective with this chart showing deficits, as a percentage of federal government revenue, going back 50 years.
— Jordan Brennan (@JordanPWBrennan) March 22, 2016Note that Canada’s deficit crisis peaked in the 1984-85 fiscal year, as Prime Minister Pierre Trudeau handed the reins of power to incoming Prime Minister Brian Mulroney.
That year, in the shadow of the brutal 1982 recession, more than half of government spending was done through borrowed money. This year’s projected deficit of 10.2 per cent of government revenue looks like a drop in the bucket by comparison.
Prime Minister Justin Trudeau and Finance Minister Bill Morneau at the budget unveiling in Ottawa, March 22, 2016. (Canadian Press photo)
Of course, comparing ourselves to the worst of times isn’t necessarily a good way to go forward, and some economists worry that, while we aren’t having a nightmare today, it could come back Freddy Krueger-style in years to come.
“We are going to end up after those next four or five years with a government that is bigger in size with an economy that doesn’t grow very fast,” C.D. Howe Institute research director Alexandre Laurin told HuffPost Canada. “There will be huge deficits. The federal debt will increase by $100 billion and [there is a] risk that the debt can spin out of control.”
Still, as many economists have noted — and as Finance Minister Bill Morneau echoed Tuesday — if the government is going to borrow money, there’s probably no better time to do it. With interest rates at historic lows, the cost of servicing government debt is the lowest it has been in 50 years.
Sharon Wood, President and CEO, Kids Help Phone (on behalf of National Youth Serving Agencies)
Canada’s youth are the biggest winners from Tuesday’s federal budget, but not in the way you’d expect. Buried deep inside the budget, well below the commendable financial commitments to First Nations, families and young children, is a potential game-changer for young people — plans to create the first ever Prime Minister’s Youth Council.
This is a momentous opportunity for Canada’s youth — but only if we get it right.
Young people in our country face significant challenges — high unemployment rates, barriers to education and job training, declining physical and mental health, a lack of affordable housing and social programs that often fail them. These problems are multiplied for aboriginal youth.
Canada’s young people face these huge challenges without a unified voice and without a clear plan to take them forward. It’s little wonder youth are often mistakenly characterized as being disengaged and disinterested.
The Prime Minister’s Youth Council offers an opportunity for youth to directly influence decisions at the highest level.
Thankfully, there is widespread support in Canada to listen to youth voices more.
This February, a national Abacus Data survey commissioned by the National Youth Service Agencies (NYSA) — a self-formed group of youth-serving registered charities from across Canada — found that 69 per cent of Canadians support the creation of an advisory council. Their support is not surprising — 67 per cent of respondents also said that young people have too little influence on public policy.
The Prime Minister’s Youth Council offers an opportunity for youth to directly influence decisions at the highest level. It signals to young people in Canada that they do not face these challenges alone. For it to be effective, we need to carefully craft its priorities, its membership, its processes and its supports.
So first things first — who should be on the Youth Council? The first priority must be to involve some youth who do not yet have the right to vote. Engaging and involving young people early encourages them towards civic participation in adulthood and will begin to equip them with the tools they’ll need for their early adult years.
The Council must be diverse and socially inclusive, giving voice to all Canadian youth including the underrepresented populations that are frequently over-represented in every challenge facing youth. Young women, aboriginal youth, LGBTQ2S youth, and young people with lived-experiences of poverty and homelessness, care environments and mental health issues should all have a strong voice on the Youth Council.
What issues should the Youth Council prioritize? When asked in the Abacus Data survey, Canada’s youth aged 18-29 said that youth employment (66 per cent), post-secondary education and job training (63 per cent), mental health (55 per cent) and health care (50 per cent) were the issues the Council should focus on. The Prime Minister’s Office should consult widely with Canada’s youth, key ministerial staff and youth-serving agencies to make a comprehensive mandate and strategic action plan from the Council’s outset.
What supports will Youth Council members have? As a collection of Canada’s most prominent youth serving agencies, we know from experience that each young person is an individual, and each will react differently to their new role. It’s critical that Youth Council members receive ongoing emotional and professional support so they can manage the pressure and scrutiny of their new high-profile roles, such as access to support, media training, and skill-building opportunities.
Today we congratulate the Government for taking a bold and innovative step towards a brighter future for all young people in Canada. Let’s seize this opportunity to create a Youth Council that we can all be proud of.
National Youth Serving Agencies (NYSA) is a self-formed group of youth-serving registered charities from across Canada who reach 5.6 million children and youth. Group members include 4-H Canada, Best Buddies Canada, Big Brothers Big Sisters of Canada, Boys and Girls Clubs of Canada, Cadets Canada, Canadian Red Cross Society, The Duke of Edinburgh Awards, Frontier College, Girl Guides of Canada, Junior Achievement Canada, Kids Help Phone, Meal Exchange, National Association of Friendship Centres, National Youth in Care Network, Salvation Army, Pathways to Education, Save the Children, Scouts Canada, St. John Ambulance, The Navy League of Canada, The Students Commission of Canada, The United Nations Association in Canada, YMCA Canada, YOUCAN! and YWCA Canada.
Canada’s policymakers are still haunted by that day in 1995 when the Wall Street Journal declared the country “an honorary member of the Third World” for our enormous public debt burden.
With Finance Minister Bill Morneau confirming on Monday that Canada is back to serious deficit spending, some are worried we’re headed back to that Third World status.
In fact, as Unifor economist Jordan Brennan pointed out on Twitter, the share of federal spending that’s going to covering debt is the lowest it’s been in half a century.
Morneau’s fiscal update predicts next year’s deficit will be five times as large as what was projected just three months ago, hitting $18.4 billion in 2016/17 — and that’s not including the Liberals’ deficit-spending promises.
Take those into account, and Ottawa faces $52 billion in deficits over the next two years, by HuffPost Canada’s calculations.
But looking at the new numbers, the economists at Canada’s big banks don’t sound scared.
“Even a $30-billion deficit would amount to only 1.5 per cent of GDP, and the U.S. has been congratulating itself on getting its federal deficit down to a low of 2.5 per cent,” noted CIBC chief economist Avery Shenfeld.
BMO’s Douglas Porter and Robert Kavcic pointed out that interest rates are even lower today than the government had been expecting, and the savings on interest payments alone will come to $1.5 billion a year for the next three years.
“In our view the government has the flexibility to provide fiscal stimulus to a Canadian economy that badly needs it,” National Bank economist Marc Pinsonneault wrote.
Finance Minister Bill Morneau’s fiscal update showes the projected deficit for next year quintupling since the last forecast three months ago, but economists say Canada can handle it. (Canadian Press photo)
Don’t Expect Miracles
But BMO’s Porter and Kavcic point out a different reason, other than growing debt, to doubt the Liberals’ spending plans: They might not repair the parts of the economy that need repairing.
“Canada is facing a structural shift from the commodity shock, and that’s not something that can be quickly countered or fully mitigated by a big fiscal boost,” they wrote in a client note Monday.
In other words, government spending won’t change the fact oil prices have collapsed and Canada’s economy is undergoing a painful shift away from energy.
They also note that, while Canada’s federal government is in a strong position to borrow, the country as a whole is less so.
“While federal finances have improved meaningfully in recent years, provincial finances have deteriorated,” they write, adding that provinces’ combined debt is set to exceed federal debt for the first time on record.
“We fully agree that a moderate dose of stimulus is an entirely appropriate response to current economic realities, but we would counsel caution in minding the dosage,” they wrote.
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