Holding the Line in an Uncertain Future


The 2019 federal budget wasn’t like the three previous Trudeau government budgets. If the calendar wasn’t enough to tell you it was an election-year budget, the unprecedented political tension, noise and obstruction that surrounded its delivery were dead giveaways. Luckily, we have former Parliamentary Budget Officer Kevin Page to get right to the numbers.


Kevin Page 

Finance Minister Bill Morneau tabled his fourth budget on March 19. The political and economic stakes are high. The federal election is scheduled for Monday, October 21. Both political support for the government and economic growth numbers are trending down. The mishandling of the SNC-Lavalin affair and the associated resignation of cabinet ministers and advisors are raising fresh and legitimate questions about the capacity to govern. 

In this context, one of the overarching themes of Budget 2019—Facing an Uncertain Future—seems appropriate. In the face of growing uncertainty, the budget strategy is largely about holding the line on priorities and fiscal policy. Is this a good strategy? 

On fiscal policy, the underlying principle is “smoke ‘em if you got ‘em” which is slang for “do what you want, if you have the means.” The ‘means’ come largely from squeezing more projected revenues out of a planning framework that does not change very much from the perspective of headline economic numbers or the declining budgetary deficit track. Higher than anticipated revenues and/or lower than anticipated spending have been the major source of funds for new spending over the past three budgets.  

In an environment of relatively low trust in the ability of governments to manage taxpayer dollars, political leaders are reluctant to raise taxes. Is there any genuine fiscal room to maneuver to address big-ticket policy items either now or in the upcoming election?

It has been said that Leonardo da Vinci would look at a problem from at least three different perspectives to improve understanding. While the Budget may lack the ingenuity of da Vinci, it is possible to examine it from an economic and fiscal perspective, policy priorities, and political strategy.

Economic and Fiscal Perspective

Budget strategy and policy evolve to a large degree around the current and projected economic environment. Since the mid-1990s, federal ministers of finance have used an average forecast taken from the private sector. At the very least, this approach removes political bias. The outlook underpinning Budget 2019 says the future will look a lot like the present-—growth continues, unemployment rates stay low, inflation rates and exchange rates do not move; and interest rates edge up so very slowly. Much of the economic analysis in the budget is backward-looking. It highlights the record of the Liberal government in growing the economy and jobs and reducing poverty rates. It is a good record.

It can be argued that Budget 2019 plays down rising concerns. Year over year economic growth rates are falling and are looking more akin to the environment the Liberals inherited in the fall of 2015 (Chart 1). Have we come full circle?  


Output in the goods sector has declined over the past year due to weakness in mining and manufacturing. Business investment is falling. Both the World Bank and the International Monetary Fund recently raised alarm over rising uncertainty due to trade tensions, the potential for financial market corrections and geopolitical issues. Projected growth rates in the Budget for 2019 (GDP up 1.8 per cent) look strong given the weakness in the latest GDP estimates. Projections for future sales in the Bank of Canada business outlook survey have flatlined.

Have the Liberals misjudged the outlook? What goes up, comes down? Nobody can predict the future. Having said this, there is nothing in the Budget to prepare for a weak economy scenario. Stephen King, the American fiction writer said “there is no harm in hoping for the best as long as you’re prepared for the worst”. We do not look prepared. The contingency reserve set aside in the fiscal planning framework can easily be eaten up by a relatively modest decline in the growth outlook.

The fiscal framework in Budget 2019 has not changed fundamentally in recent years. The Liberals are holding the line. The relatively modest budgetary deficit of $20 billion in 2019-20 (0.9 per cent of GDP) is cut in half over the next five years ($10 billion or 0.4 per cent of GDP). See Table 1—Summary Statement of Transactions. The federal debt will rise by $76 billion over the next five years to $762 billion in 2023-24. With assumed growth in GDP, the debt-to-GDP ratio will fall by 2 percentage points to 28.6 per cent. 


Total policy actions in Budget 2019 (since the 2018 Fall Economic Statement) over a six-year period (2018-19 to 2023-24) total about $27 billion. The funds for these actions are generated from internal forecast adjustments. Revenues are higher across the horizon largely driven by strong fiscal results in 2018-19 that are assumed to be carried forward. Similarly, planned spending has been revised down due to an array of factors ranging from fewer-than-expected Employment Insurance (EI) beneficiaries and payouts for senior programs that are also carried forward. These forecast adjustments total about $28 billion over six years.

Once again, as was the case in recent fall updates and budgets containing measures, internal forecast adjustments generate the fiscal room for budget measures (Table 2). Bureaucrats revise the outlook. The Liberals use up all the fiscal room, virtually, down to the last nickel, to move forward on new spending measures.


A Tale of Two Budgets

The Liberals’ commitment to holding the line is exemplified by comparisons with Budget 2016. 

Many commentators would likely agree that Budget 2016 was the signature budget over the Liberal mandate. It is the budget that truly addressed their priority to strengthen the middle class with large initiatives that increased the child benefit and lowered the middle tax rate plus a range of initiatives to address policy challenges related to the environment, Indigenous peoples, infrastructure, and more. Total outlays for new initiatives in Budget 2016 ($50 billion) over a six-year period were about twice the amount in Budget 2019 ($27 billion).

Notwithstanding the greater outlays for new initiatives, if one goes back to look at the projections in Budget 2016, they will see that Liberals are not far off that fiscal plan from the perspective of 2019. 


The projected deficit for 2018-19 will come in lower than predicted in the 2018 Fall Economic Statement ($14.9 billion vs $18.1 billion) and will include more than $4 billion in new measures related to additional monies for infrastructure for municipalities and comprehensive claims negotiations with Indigenous peoples. 

The Liberals can rightfully claim they have been hitting deficit targets since Budget 2016. Hitting annual targets helps to build trust, even if you question the policy merits of budgetary deficits at this stage of the economic cycle. 

Policy Priorities

It is a challenge to find an overarching policy narrative in Budget 2019. It is a modest budget in terms of allocation of monies ($27 billion over 6 years) to new measures. However, the number of new measures is not modest—there are more than 140 adjustments to the fiscal planning framework since the 2018 Fall Economic Statement scattered across constituents, sectors, and regions. In an economy where the annual GDP is about $2.3 trillion, the government could be accused of spreading the money too thinly to make much of a difference. 

While budget communications remain firmly anchored to “investing in the middle class”, the more appropriate narrative driving the plethora of measures appears to be linked to “facing an uncertain future”. As the old adage goes, “when in doubt, do something”. 

There are measures covering the full spectrum of demographics. For the millennials, there are new programs to buy a house and help with student debt. For the middle-aged, there are new programs to help with job training. For seniors, there are new programs to help with income support. There are measures covering a range of sectors—health, culture, science and research, public safety, and international engagement. There are measures to address the needs of veterans and Indigenous peoples. There are measures to help municipalities, rural communities (high speed internet) and people of the North. There are measures to help government strengthen internal services and improve tax compliance. 

With some of these proposed measures there will be significant policy challenges. There are genuine question marks about program design for first time home buyers. How will the markets respond? What will be the take-up on the new training benefit given the relatively small government subsidy?

In other cases, new initiatives made only early steps. On pharmacare, the government proposes to introduce a new drug agency and provide future support to improve accessibility to high-cost drugs for rare diseases. It is far short of implementing a national program.

Political Strategy

The British chef Marco Pierre White said “perfection is a lot of little things done right”. Budget 2019 will give the Liberals enough to talk about while knocking on doors during the fall campaign. The size and range of measures will make it easier to connect with people. The challenge will be to get as many of these measures passed into legislation before the summer break, just a few months away, so that constituents will reap the benefits.

Budget 2019 is much more a pre-election budget than a platform. There are no signature initiatives. Significant policy space has been vacated for opposition parties. Former Senator Hugh Segal has highlighted the need and opportunity for opposition parties to build strong policy agendas (i.e., to do more than hold the government accountable on the SNC Lavalin issue). The increases in federal debt and associated interest on the public debt will raise legitimate concerns about the government’s capacity as a fiscal manager. If the economy slides into a recession between now and the election, the government will look seriously unprepared. 

One of the big questions now facing all parties preparing platforms for the 2019 federal election is the amount of fiscal space available for new initiatives. Have the Liberals used up this space leaving little to no room for major initiatives without raising taxes or cutting spending programs? And, will citizens trust governments enough to raise taxes for big initiatives like a national pharmacare program given the struggle it takes to implement pay systems or procure military hardware?

Let the race begin.  


Kevin Page, former Parliamentary Budget Officer of Canada, is President and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa.