Political Imperatives Fulfilled, On a Shaky Fiscal Foundation


Rachel Curran

The 2018 budget achieves what budgets set out to do politically to an impressive degree; it satisfies certain target constituencies without alienating voters who won’t vote Liberal regardless of the government’s fiscal plans, writes Rachel Curran, longtime adviser to Stephen Harper. But, adds Curran, it’s missing what Paul Martin and Jean Chrétien would have considered essential.

All government budgets are political documents, to a greater or lesser degree, and therefore provide important insight into a government’s electoral strategy and priorities. As the Trudeau government unveiled its third budget on February 27 in advance of the 2019 general election, it was clear that its sights remain firmly focused on two groups in particular: (i) women, and (ii) NDP voters who migrated to the Liberals in 2015. Those groups, of course, along with younger voters, were the ones who propelled the government to its majority victory in the last election, and who will be critical to its electoral success in the next one.

Budget 2018 announced a suite of initiatives and programs designed to appeal to the government’s particular target audiences. It is difficult to overstate the extent to which gender issues and measures designed to achieve greater equality for women pervade the budget text: from a new parental leave benefit designed to “set up patterns of equal parenting” and increase the participation of women in the workforce, to legislation intended to help close the gender wage gap, to a new Apprenticeship Incentive Grant for women, to increased funding for female entrepreneurs and women in STEM fields, to measures aimed at preventing gender-based violence, harassment and discrimination, to a “national conversation on gender equality” with young Canadians, and even to an entire chapter devoted to gender-based analysis of the budget itself, the government has tied its colours firmly and squarely to the promotion of women’s interests.

Whether any of these initiatives will make a real and measurable difference in
the lives of Canadian women remains to be seen, of course. Pay equity legislation will apply only to the small percentage of workers who are employed in the federal government and federally-regulated sectors. Attempting to encourage women to enter or rejoin the full-time labour force more quickly after having a child will be a fruitless effort if, as it seems, women are choosing of their own accord to remain at home or work part-time while their children are young. Making Status of Women Canada a full government department is likely only to accomplish an expansion in the size and cost of the federal bureaucracy, while public praise for corporations who pursue greater diversity at senior management and board levels will do little to increase female representation in the absence of shareholder or other pressure.

Nevertheless, many of the budget’s announced initiatives are well-intentioned and will appeal broadly to female voters. And, as importantly, the only voters who are likely to find the government’s singular focus on women particularly offensive are the same voters who would never dream of voting for the Liberals in the first place.

The second group of voters to whom the budget is designed to appeal is the NDP’s natural constituency. The Liberal government’s majority re-election is virtually guaranteed with the continued irrelevance of the NDP and, with that in mind, Budget 2018 announced an expanded Canada Workers Benefit designed to support very low-income workers (a measure first implemented, incidentally, by former Prime Minister Harper) and a new advisory council on national pharmacare headed by Premier Wynne’s former health minister, Eric Hoskins. While there was certainly no promise to actually implement a national pharmacare plan—the prospects for a comprehensive plan remain very unlikely, given the prohibitive cost—it is possible that a scaled-down proposal could appear in the government’s 2019 pre-election budget, or even in its next campaign platform.

Other measures designed to appeal to NDP supporters include significant new investments in environmental and conservation initiatives, a re-commitment to imposition of carbon pricing nationally in 2018, enhancements to CPP benefits for disabled individuals, increased funding through CMHC for rental housing construction loans, and over $1 billion in funding this year alone for indigenous health and child and family service initiatives.

For young voters who supported the Liberals in 2015, there was surprisingly little beyond an expansion of the Canada Summer Jobs program and a commitment to announce a new Youth Employment Strategy over the next year. However, for the 25-odd ridings with minority language communities, there was a significant increase in funding for official languages. For seasonal workers in Atlantic provinces, there was a promise to restructure the Employment Insurance program to provide additional income support—as if the program were not already sufficiently imbalanced in that direction. The requisite nod to the economy, not to mention universities located in important urban ridings, was made through (pre-announced) major spending on science and innovation.

Budget 2018 is a document designed, then, to achieve maximum political advantage. To be clear, this is not to say that particular initiatives are unworthy or unnecessary because they are also politically advantageous. Any government will try to position itself, ideally, at the nexus of good policy and good politics. Depending on one’s perspective, Budget 2018 contains a mix of good, indifferent, and terrible policy, but it appeals to the government’s current and potential supporters while avoiding any obvious targets of attack, and thus must be counted a political success.

The bad news, however, is that the budget rests on a fiscal foundation that is tenuous at best. The Liberal government continues to run successive large deficits with no plan to balance the budget, or even to rein in spending to any notable degree (annual program spending growth in excess of 6 per cent followed by a sudden, unexplained drop in following years is simply not credible). New spending initiatives are both large and ongoing, meaning that the full fiscal impact has yet to be realized; Paul Martin and Jean Chrétien could provide the current government with a useful primer on the longer-term dangers of structural spending increases.

The budget text attempts to argue that the government is maintaining a downward deficit and debt ratio track, but this trajectory is achieved (barely) in 2018-19 only through the magic of accrual accounting—namely, by booking all veterans’ Pension for Life expenses in 2017-18 and removing them from every subsequent fiscal year, thereby increasing the size of the 2017-18 deficit and reducing the size of following ones. The year-over-year deficit actually increases between 2016-17 and 2017-18, with every expectation that the same result will occur in 2018-19. There is, additionally, throughout the budget an effort to avoid booking new spending in 2018-19 wherever possible and move it out to later years.

It is difficult to imagine that the government will be in any better position to control its spending next year, immediately prior to an election. Revenue is booked from increased taxes on tobacco, and planned taxation of legalized cannabis, as well as vague proposals to “close tax loopholes.” And, of course, the government also realizes significant revenue from its plan to tax passive investment income held within private corporations, though the proposal appearing in Budget 2018 has been scaled back significantly following a well-documented backlash from Canadian farmers, small businesses and skilled professionals. However, in the absence of new tax increases, the government will continue to struggle mightily to hold the deficit at its current level, never mind reduce it or move in the direction of budget balance.

While this might be sustainable if the status quo—namely, strong economic growth and low interest rates—remained unchanged, it is unsustainable in the face of inevitable future economic downturns or revenue/spending shocks, including the potential termination of NAFTA. It is unsustainable in light of the U.S.’s recent action to reduce tax rates, which has significantly affected Canada’s competitiveness. It is unsustainable in particular if we cannot get our resources to tidewater, while our competitors position themselves to export to a growing Asian market. And it is certainly unsustainable in the face of looming demographic change; our health care system is already in crisis, with provinces unable to dedicate the resources necessary to ensure bare-minimum standards.

Add these pressures to the regular pressures a federal government already faces—some of which appear in Budget 2018, including major new funds to bolster cybersecurity, money to deal with the Phoenix debacle, improving client services at the Canada Revenue Agency in the wake of a stingingly-critical Auditor General’s report, increased funding (again) to the Canadian Air Transport Security Authority for security screening at airports, new money to manage irregular migration flows at the U.S. border, funding to conduct the 2021 census, and a one-time infusion of cash to respond to clearly critical RCMP pressures—and it is evident that the current government’s approach to managing the country’s finances can be described as careless at best.

In sum, then, as a political document, Budget 2018 is a success. It responds to the concerns of the government’s target voter groups while sprinkling new funds across a wide variety of programs and organizations whose vocal support of the government’s agenda can now be counted upon. However, it also exposes the degree to which Canada is increasingly unprepared for any major crisis—and how, in arguably the best of economic times, we are choosing to spend beyond our means instead of preparing for the future. Some government, some day, will be forced to reckon with that choice.

Rachel Curran is a senior associate with Harper & Associates Ltd., and is an instructor at Carleton University’s Riddell Program in Political Management. She also appears as a regular panelist on CBC’s“Power and Politics”.