A tale of two debt loads

Mountain of debt...maybe we grow accustomed to its face...

Mountain of debt…maybe we grow accustomed to its face…

Implementing prudent fiscal policy is, for finance ministers, like threading a needle with a tightrope. Just ask Ottawa’s Joe Oliver or Fredericton’s Blaine Higgs who are, for very different reasons, attempting to execute that particular circus trick.

In the wake of a C.D. Howe Institute report that calls for the federal government to loosen up on its avowed purpose to balance the national budget by 2015 come what may, Mr. Oliver thunders like a Calvinist preacher: “Our government will not open the taps on reckless spending. We will not go down that well-trod and irresponsible path to economic decline.”

Still, economist William Scarth is adamant. “The federal government should delay its final stage of deficit reduction by three years,” he writes in his report for C.D. Howe. “If its deficit-to-GDP ratio is held at one-half of one percentage point for three years before reducing it to zero, it is estimated that the nation’s unemployment rate would be four-tenths of one percentage point lower during this three-year period (the equivalent of 75,000 new jobs).”

He’s not alone in this thinking.

A recent Canadian Press piece quotes several noted experts – some of whom are not partisan word warriors – who point out that the Canadian economy is not, in fact, in especially good shape. Over the past 12 months, only Alberta has created any jobs –  and even there, 72,000 new positions are not enough to boost the flagging fortunes of Ontario, Quebec or, for that matter, New Brunswick.

“Balancing the budget is a political imperative not an economic one,” NDP finance critic Nathan Cullen says. “It’s like balancing the family budget and not feeding the kids.”

Meanwhile, Liberal deputy leader Ralph Goodale writes in a recent editorial, “For months on end, (the Harper government) dismiss weak employment numbers like the ones recently reported by Statistics Canada for the month of June – as just ‘monthly volatility’.  But it keeps recurring, month after month. One might ask, at what point does that so-called ‘volatility’ become an undeniable trend in the wrong direction. Or to put it another way, when will Mr. Harper pull his head out of the sand?”

Then, there’s David Dodge, a former Bank of Canada Governor whose Spring 2014 Economic Outlook for the law firm Bennett Jones observes: “It is. . .important to realize that in the current environment of low long-term interest rates, fiscal prudence does not require bringing the annual budget balance to zero almost immediately. Small increases in borrowing requirements to finance infrastructure investment would still lead to declines in the debt-to-GDP ratio. Moreover, with low interest rates, it is the right time for governments and the private sector to invest in infrastructure.”

Finally, the CP taps Bank of Montreal chief economist Doug Porter for his views. Says he: “The market is not crying out for a tighter fiscal policy at the federal level. If the government wheeled out a significant medium-term infrastructure program, I don’t think I’d have a big problem with it they can borrow very cheaply and there’s a pretty good case to be made that there’s lots of demand for infrastructure.”

Move eastward to New Brunswick and witness a whole different tale of woe. Here, Finance Minister Higgs would give his left pinky to own Mr. Oliver’s set of problems, i.e., to spend or not to spend.

According to the latest audited financial statements, the province finished fiscal 2013-14 with a deficit of $500 million (about $20 million more that anticipated) on a long-tern debt of $11.6 billion.

Meanwhile, New Brunswick’s population of 755,464 people continues to age, making a quick return to fiscal health about as likely as a late-July nor’easter.

Still, plucky Premier David Alward enthuses, “We are turning the corner and we see revenue projections on target or actually a bit ahead of target from what we are projecting.”

Of course, to do that, Telegraph-Journal reporter Chris Morris notes “additional revenues of $1.129 billion, a 14 per cent increase over 2014-2015, must be achieved.”

Not even on his very best day would Mr. Oliver walk that tightrope for Mr. Higgs.

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