Context important looking at federal budget numbers, says economist

By Lethbridge Herald on April 22, 2021.

Tim Kalinowski
Lethbridge Herald
tkalinowski@lethbridgeherald.com

University of Calgary economist and School of Public Policy research fellow, Trevor Tombe, says the big numbers contained in the recently released federal budget are not as scary as they might seem at first glance. Context, he says, is everything.

“There is no credible concern, like there was in the 1990s, of the Canadian government having interest costs (on debt) eating up one third of the entire budget,” he explains. “I don’t have any immediate or even longer term concerns with the federal debt.”

Tombe says that is not to say Canadians should not engage in strong dialogue about the budget, and its spending priorities, to see if they agree with those priorities or not. But, he says, the sky is not falling here as the federal debt level is technically sustainable.

“What is not reasonable is what is happening in Canada right now is to look at the federal borrowing that is taking place now, and over the next five years, in the budget is leading us to a fiscal cliff of some kind,” he states. “The debt is growing, but it is growing more slowly than the economy. And that is a key measure of long-term sustainability of public debt. And that’s why the debt to GDP ratio is relevant.

“That’s not to say (the spending) is ‘good.’ It is just to say it is mechanically sustainable.”

Tombe says what sticks out to him more about the Liberals’ spending promises, particularly on a national childcare program, is many of them are contingent on provincial buy-in on a 50/50 basis.

“What stood out in the budget, of course, was the childcare initiative, but what made that (commitment) interesting to me was it was not a federal program,” he explains. “It is a 50/50 split with provinces, and there might be some really significant challenges there. I look at Alberta’s finances, and I wonder if the government here would be interested in a $3.5 to $4 billion commitment over the next four years?”

If there is no provincial buy-in, says Tombe, it amounts to little more than window dressing on the federal government’s part, or, at most, an interesting point for public discussion on Canadians’ spending priorities.

“Some of these programs may not actually get off the ground,” he states. “They are simply put in the window. Including childcare. Because that is something which is 50/50 with provinces, it is not all clear it actually will happen unless there are willing partners among provincial governments.”

At the end of the day, Tombe does believe the proposed spending by the Liberals must be evaluated through two distinct lenses. First, most of the spending is pandemic-related, and it is crisis-spending Canadians expect from the federal government. The second, more critical lens, is taking a hard look at, and weighing the pros and cons of, the discretionary spending in the budget for items that are driven by the Liberal party’s social values and the course they want to chart going forward if they win another election this fall.

Those items are certainly fair game for criticism and, Tombe hopes, deep discussions among Canadians to ensure those items represent good value for money.

“Every single budget is in part a political communication document,” says Tombe. “And that is especially true in a minority government. We should view the borrowing during 2020 and 2021 as crisis-related when it comes to supporting programs– we ought to view that very differently than things down the line in 2024 and 2025.”

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