With deficit pledge, Trudeau ends the election’s “phoney war”

By Steve Paikin - Published on August 28, 2015
Justin Trudeau introduces former prime minister Paul Martin — the Liberal party’s symbol of sound fiscal management — at a campaign rally in Montreal, Aug. 28.

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Most of the people I talk to on the hustings these days have so far described Election 2015 as the “phoney war.” Because the campaign is so much longer than anything we've experienced in decades, organizers have been unsure as to how and when to roll out their campaign platforms.

The parties' fears have essentially been, “what if we put our best stuff out there during the dog days of August when more people may be fixated on the Blue Jays pennant drive than political platforms?” And so, the leaders have been holding only one or two events per day and the announcements for the most part haven't been terribly splashy.

Until yesterday.

The Liberals have now taken the first significant risk of the campaign and the issue is: debt and deficits.

Ever since finance minister Paul Martin brought in the first of almost a decade's worth of balanced budgets in the 1990s and early 21st century, it's been conventional wisdom in Canadian politics that any successive government went back into deficit at its peril.

However, the Conservatives under Stephen Harper have shown during the Great Recession that if the economy performs poorly enough, Canadians will accept deficit spending to prime the economic pump. In fact, during the worst of the recession, a Harper minority government brought in a budget with an astonishing $55 billion deficit – as an absolute number, the single biggest deficit in Canadian history. It was either that or be defeated by the opposition parties which had a majority of the seats.

But when finance minister Joe Oliver presented a balanced budget for 2015-16, it seemed to usher in a new era of “back to the future.” Once again, running deficits would be unacceptable, and any party that declined to promise to balance the books would be toast.

That's why yesterday's announcement in Oakville by Liberal leader Justin Trudeau appears to be such a breathtaking gamble. With a large group of construction workers in hard hats behind him for campaign wallpaper, Trudeau vowed to run “modest” deficits of no more than $10 billion a year for the next few years, as part of a $60 billion, 10-year infrastructure building plan. He said the budget would be balanced in 2019. The initial reaction from Toronto’s Mayor John Tory and Brampton’s Mayor Linda Jeffrey was extremely positive.

However, the other major party leaders pounced. Stephen Harper said this would open the door to deficits as far as the eye could see, and ridiculed Trudeau’s promise of a “teeny, tiny deficit.” Thomas Mulcair made his second visit to Eglinton-Lawrence in midtown Toronto, where his candidate Andrew Thomson, the former Saskatchewan finance minister, opened his campaign office. Mulcair reiterated his pledge to balance the budget during his first year in office. During a wide-ranging, free-wheeling scrum, I asked Mulcair why he thought it was so imperative to be even a tougher deficit hawk than the prime minister. He said it was immoral to go further into debt today, and pass on the responsibility of repaying those debts to our children and grandchildren. Thomson added that while Canada's debt- to-GDP ratio is a manageable 30 per cent, if you add all provincial debts into the mix, it gets closer to 85 per cent which he considered dangerous.

“Do you like Paul Krugman as an economist?” I asked Thomson.

“I do,” he said. Krugman has repeatedly written in his New York Times column that with interest rates at historic lows, it's a perfect time to deficit spend to catch up for decades of under investment in infrastructure.

“But on this one, Krugman's wrong,” Thomson said.

Even if the economy goes into recession again, Mulcair vowed, he will balance the budget, for example, by cancelling the Conservatives' income-splitting plan, ceasing legal fights against indigenous groups, and eliminating tax breaks to the oil patch. He also mused that if he could eliminate the Senate as he'd like to, that'd save $1 billion too.

While it's true that the Department of Finance studied the economic records of all three major parties and found the NDP with the best record of consistently balancing budgets, it did sound a tad odd to hear Mulcair and Thomson uttering campaign lines that sounded very similar to ones used by Progressive Conservative premier Mike Harris in the 1990s.

In any event, when this election campaign is over, we may look back at August 27 as the day when the phoney war ended. The Liberals have now distinguished themselves from the other main parties, figuring that Canadians are more concerned about a lack of investment in public infrastructure and a softening economy than in immediately balancing the budget. It was an approach that certainly worked for Premier Kathleen Wynne in the 2014 Ontario election campaign.

We'll know on October 19th whether they were right. 

Image credit: Facebook.com/JustinPJTrudeau

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