How lucky are federal Finance Minister Bill Morneau and the Liberal government? Very lucky.

Morneau brought out his fall fiscal update this past week and it ought to have caused significant concern. But with Parliament closed, the Opposition in disarray, and voters distracted by the pre-holiday rush, it was a one-day wonder.

The finance minister’s statement deserved more attention than that. It shows that with the economy humming along nicely and tax revenues higher than expected, the government has still managed to almost double its deficit — from $14 billion last year to a projected $26.6 billion next year. That’s a one-year jump of 90 per cent.

We’ve never been ones to insist on strict fiscal discipline; far from it. We supported Justin Trudeau’s move back in 2015 to drop the balanced-budget orthodoxy of the moment and promise more ambitious spending at a time when it was badly needed after years of Conservative austerity. That was key to his party’s smashing victory that year.

But still, there must be limits. And with his latest budgetary update, Morneau may well be bumping up against them for this government.

In 2015, the Liberals promised to return to balance by this year, a nod to the notion that budgets should be balanced over the course of an economic cycle, or at least a political one.

That went by the wayside quite a while ago, in favour of a pledge to reduce the deficit as a share of the economy every year. That would keep the deficit under control and make sure the country could afford to carry its debt.

In fact, though, it’s been going in the other direction. The debt-to-GDP ratio has crept up from 25 per cent when the Liberals took power to 30.8 per cent last year. Morneau now projects it to be 31 per cent next year. That’s a very small increase, but it’s not what was promised.

No worries, says the government. Canada still has the lowest debt-to-GDP ratio of all the G7 countries and can well afford to keep spending at its current rate. It also notes that the higher deficit is due partly to an accounting adjustment to reflect bigger obligations to fund government pensions.

That’s fine, as long as the economy keeps expanding, and as long as the government eventually shows it can exercise some fiscal discipline. It keeps projecting lower deficits down the road, but when we actually get there, the numbers are always bigger, not smaller.

Eventually this has to catch up with us. A recession at some point is inevitable. Even the government seems to realize that. Indeed, Trudeau’s second-term mandate letter to Morneau instructs the finance minister to “preserve fiscal firepower in the event that we need to respond to an economic downturn.”

So much for that. This week’s announcement suggests that Morneau has already fired off his whole arsenal. If things do get bad, the deficit could go through the roof and set the stage for ferocious cuts in the future.

Voters under the age of, say, 40 may not remember, but we’ve been here before. A previous Liberal government, in the 1990s, had to make savage spending cuts to regain control of federal finances. That translated into deep reductions in services, and real hardship for ordinary people. It would be tragic to see that cycle repeated once again.

Even aside from any possible recession, the government faces a big challenge in keeping its spending at the levels Morneau projected this week.

The Liberals made a staggering $57 billion worth of promises over four years in the recent election campaign. And the provinces are already lining up to demand more, more, more for everything from health care to transit. A minority Parliament only increases pressure on the government.

At the same time, the government is digging its fiscal hole deeper by going ahead with its latest “middle-class tax cut.” This is its campaign promise to raise the amount of income exempted from federal income tax from $13,000 to $15,000 by 2023.

We understand why the Liberals are doing this; giving the fabled “middle class” a tax break was key to its strategy for electoral victory. But the fact remains that it’s not a great use of federal spending power.

Loading... Loading... Loading... Loading... Loading... Loading...

It does nothing for those who need the money the most (the poorest). And those who will benefit the most, according to an analysis by David Macdonald of the Canadian Centre for Policy Alternatives, are people who don’t really need a few hundred extra bucks a year — “dual earning upper-middle-class families making between $100K and $200K in family income.”

Still, this dubious and mostly ineffectual tax break will cost the government $6 billion in lost revenue each year once it’s fully phased in. It hardly seems like the best use of that much money, but it’s a significant factor in ratcheting up the government’s deficit and will make it that much harder to respond to more pressing social needs.

As long as the Liberals and the Canadian economy remain lucky, all this may not matter too much. But if things turn bad, the picture will darken very quickly.

Read more about: