How Harper could (and should) have ducked a deficit

National Post Fri 21 Nov 2008
Byline: Ralph Goodale

Not long ago, as Canadians were about to vote in the federal election, Prime Minister Stephen Harper was emphatic about his Conservative government not running a budgetary deficit.

Now, barely a month later, he wants us to believe that he's being driven toward unavoidable red ink by sudden international circumstances beyond his control.

It's all the fault of a collapsing U. S. housing market, bank failures, a global credit crunch and continuing turmoil in financial markets world-wide. That's the Conservative spin.

So now, the Canadian government has no choice but to sell off capital assets, or cancel programs and services, or run a federal deficit -- or a combination of all three -- if it's going to safeguard Canadian pensions, salvage jobs in the manufacturing, automotive and forestry sectors and kick-start economic growth.

But wait a minute. This Conservative story just doesn't add up.

Yes, the economic crisis that began in the United States is very real, and it will indeed inflict significant damage in Canada and around the world. But the fact that this country is not in a better position today to weather that storm is entirely Mr. Harper's domestic responsibility.
The best economic forecasters in the private sector and within government have been warning successive finance ministers since at least 2003 about the huge downside risks posed by the precarious American situation. Previous Liberal governments took those warnings seriously. Stephen Harper did not.

The fact that Canada is not in a position to weather the economic crisis is entirely his fault
position in all the G8 group of world-leading economies, including an annual surplus of more than $12-billion and projected financial flexibility of close to $100-billion over the coming five years.
But as soon as he came into office, and long before any U. S. crisis materialized, Mr. Harper began frittering all of that away.

He increased federal government spending to an unprecedented level. He eroded the federal tax base, without bolstering productivity or improving disposable incomes. And he eliminated the extra prudence and the contingency reserve that used to be built into federal budget-making as "fiscal shock absorbers" to protect against sudden nasty surprises.

You always hope those surprises will never actually happen, but inevitably they do. Until Mr. Harper arrived on the scene, Canada had the wherewithal to defend itself.

We withstood the consequences of major international currency crises in Mexico and Asia, the SARS pandemic, mad cow disease and the fallout from 9/11, while still cutting taxes, paying down debt, investing in health care, education, innovation and infrastructure and staying solidly in the black at the same time.

But no more. Mr. Harper has squandered Canada's fiscal capacity.

So the first external crisis to come along on his watch results in a deficit. And that's entirely his responsibility.

-Ralph Goodale is the Liberal MP for Wascana constituency in Saskatchewan and House Leader for the Official Opposition. He was Canada's finance minister from 2003 to 2006.