For its first budget, the Liberal government leveraged its 2015 electoral platform to deliver on promises to be a more interventionist government. Several legacy programs were announced today, with still more to come — one can surmise, given the scope of their promises — in subsequent years.

The budget will be remembered for a number of signature-type initiatives, including: a new Child Care Benefit; investments in Aboriginal education; expanded benefits and services for veterans; enriched employment insurance; new programs for youth; and the first phase of increased federal infrastructure spending.

Beyond current actions and announcements, future policy commitments were highlighted. Notably, further spending to come in innovation and a second phase of infrastructure investment were briefly discussed, with promises to analyze and assess potential directions in these areas to promote future economic growth and jobs for Canadians. This is needed.

New program developments and government interventions come at a price. In this budget, there are noticeable changes to the bottom line: $11.5 billion in new spending initiatives in 2016-17, rising to $14.9 billion in year two. These increases in program spending will also precipitate short-term increases in Canada’s debt-to-GDP (gross domestic product) ratio. There is no fiscal ‘free lunch.’

Put in perspective, the increase in federal direct program spending is large (representing one per cent of GDP). This budget is not like previous Conservative budgets. Budget “winners” include First Nations and veterans. While the Conservatives’ stimulus budget in 2009/10 was based largely on temporary measures, the Liberals’ newly announced measures represent ongoing spending. Like recent Conservative budgets, however, there was precious little to address military procurement issues. This can was kicked down the road again.

It is never a good idea to give governments an unlimited long leash to run deficits. Without fiscal rules or targets on spending or debt, there is little to hold them back. It is never a good idea to give governments an unlimited long leash to run deficits. Without fiscal rules or targets on spending or debt, there is little to hold them back.

The government has put forth some big policy initiatives but they are failing short on fiscal prudence. There are a number of red flags that merit closer attention and analysis. The budget and its presentation is premised on growing the middle class. However, there is no diagnostic or definition of the middle class in the budget.

Put differently, it appears that the government has provided a policy solution for an undefined problem.

There are also large planned increases in infrastructure spending in phases 1 and 2 without national or sectoral plans, without a needs assessment and without improvements to governance to ensure effective due-diligence on project selection and implementation. To the government’s credit, $50 million was allocated to municipal capacity building — but the nature of that capacity and desired outcomes remain undefined.

Beyond the missing definitions and plans, there is also no roadmap to get back to balance. It is never a good idea to give governments an unlimited long leash to run deficits. Without fiscal rules or targets on spending or debt, there is little to hold them back. Furthermore, presenting a fiscal plan with lots of new ongoing spending makes these deficits look more structural (i.e. lasting) than cyclical (i.e. short-lived) over the medium term. This raises concerns that the new, higher federal deficits will create sustainability issues, reflected in rising debt-to-GDP over the long term, as Canada undergoes an aging demographic adjustment over the next two decades.

Budgets are fiscal plans. A fiscal plan without a strategy to get back to balance and without sustainability analysis is not responsible or prudent. In this budget, we are deficit-financing tax cuts, spending increases for families, First Nations and veterans. We are passing higher debt onto future generations. Persistent deficits over the medium term highlight the need for tax increases. Stay tuned.

The government should be lauded for helping those in need and for addressing ongoing infrastructure deficits. We got the big policy initiatives many hoped for. Thank you. But the government fell short on the plan. There is more work to do.

Kevin Page was the first ever Parliamentary Budget Officer for Canada. He holds the Jean-Luc Pepin Research Chair (JLP) and leads the Institute of Fiscal Studies and Democracy at the University of Ottawa.

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