Spend first, ask questions later—not sustainable fiscal policy

During the first six months of the pandemic, with the effects of the lockdown hitting the economy, government revenues collapsed. Spending increased to provide quick support and relief, producing a federal deficit that reached 15 per cent of GDP.

Clearly, there are lessons to be learned from Ottawa’s response. First and foremost, Canada was caught off guard by the pandemic, but we are now at the point where panic-spending must be reined in. More thought must be given to exactly what new programs—if any—are needed, the level of support required, what works and what didn’t work.

Simply put, more thought must be devoted to spending the money wisely.

Continually intoning in sombre tones that "people need to be helped" as a pretext for scattergun spending, which raises deficits and debt, may be politically popular today, but it helps no one in the long run. All bills come due. It’s not a question of if, but when.

Canada is fortunate that it was able to deal with the first wave of the pandemic from a relatively good fiscal position. A $400 billion budget deficit, while eyebrow raising, is manageable given the current interest rate environment. However, even with interest rates as low as they are, running upwards of a $400 billion deficit every six months for the duration of the pandemic, which may well stretch over the next two years, is fiscally irresponsible. Even at current low interest rates, debt interest costs will approximately double if the size of the national debt doubles.

So what should the Trudeau government do?

First, it must think more before starting to spend. A spend first, ask questions later approach is not a sustainable long-term government policy. Priority spending must be about getting the pandemic under control via resources for testing and contact tracing and health spending in key areas such as hospitals and long-term care. There then must be continued support and adjustment programs for individuals and business to tide them over during the winter months, but they cannot be as generous as they were previously. It must be more measured.

Part of the problem may be expectations given that there has not been a severe recession in Canada since the early-1990s (2008-09 was actually mild). New cohorts coming into the labour market have never seen a prolonged or severe downturn such as the 1981-82 or 1990-91 recessions, so the present situation is a shock. Yet prior to the ’90s, most people expected a recession every five to seven years and the government support programs of the day were nowhere near as generous as what the public has gotten used to over the last six months. And, as generous as support programs such as the CERB have been, they have done little for people on social assistance or in need of affordable housing. And they’ve funnelled billions to many Canadians who do not need the level of support provided.

Second, the pandemic should not be used to promote a political agenda to "transform society" without a proper political debate as to what that even means. The Trudeau government was not elected on a mandate to pursue transformative change of the economy or its social infrastructure. Such an agenda requires an election and strong mandate, not a minority parliament dealing with a pandemic. Ottawa must focus on the current problems and present a plan for some type of fiscal targets—a fiscal anchor, if you wish. This requires an actual budget and a comprehensive overview of federal finances—not just another fiscal update.

You can’t engage in transformative fiscal change without presenting a solid picture of the country’s finances. It’s undemocratic to advance an agenda for transformative change without a mandate from the public and an explanation of what change really means. More to the point, you can’t fight the pandemic—and engage in transformation at the same time—if you hope to do either well. Pushing “transformative” agendas deflects attention from dealing with the pandemic.