We are repeatedly told in the press that getting out of deficit was oh so difficult, and so we need to proceed cautiously down that road in the 2009 budget. In fact, Paul Martin’s landmark 1995 budget that took aggressive measures (1995/96 fiscal year) turned into a surplus of $3 billion in the 1997/98 fiscal year. So it took exactly two fiscal years to get out from under the deficits of the early 1990s in the high-$30 billion range. By 1999/2000 the surplus surged above $14 billion and hit almost $20 billion the year after.
As the CCPA argued at the time, the federal budget need not have been so aggressive. The budget could have been restored to balance much more slowly without unilateral cuts to social programs that angered the provinces, led to program cuts (though the amalgamated and shrunken Canada Health and Social Transfer) and set the stage for the expansion of poverty and homelessness we now confront in our cities (though elimination of the Canada Assistance Program transfer).
So don’t believe the pundits when they go on about how hard it would be to get out of deficit. Fiscal fortunes can change quickly if the economy is growing. And the magnitude of today’s proposed deficits ($34 billion in 2009/00) is rather small, about 2% of GDP, compated to the deficits we saw in the 1990s when GDP was much smaller. The largest ever deficit as a share of GDP was 7.9% back in 1983/84, equivalent to some $120 billion were that to be replicated today (and provinces were running deficits back then, too).
The problem with the newspaper pundits is that they think in dollars not shares of GDP. The concept of compounding growth and its impact in public finance is lost to them, so they get starry-eyed and panic at the prospect of a $34 billion deficit, recalling the early 1990s. They might as well complain that they could buy a candy bar for a quarter back then while they are at it.
- Ten things to know about the 2016-17 Alberta budget (May 3rd, 2016)
- February Labour Force Woes (March 11th, 2016)
- Jobs and Growth after the Great Recession (December 23rd, 2015)
- Federal Surplus: Digging Deeper (September 15th, 2015)
- Budget 2015: Robin Hood in Reverse (April 22nd, 2015)