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Morneau seems unaware of the risks of running deficits during periods of economic growth. Specifically, running deficits outside of recessions (or pronounced slowdowns) risks a permanent imbalance between spending and revenues, like what happened in Canada throughout the 1970s, ’80s and early ’90s. Simply put, it didn’t matter if the economy was growing, slowing or in recession. Ottawa could not balance its budget.

The accumulation of debt during this period led to the fiscal crisis of the early 1990s when the deficit and debt were out of control. At one point, the federal government was spending almost 40 cents of every dollar solely on interest costs. To get a handle on federal finances, the Chrétien government implemented large-scale reforms, including reducing program spending by nearly 10 per cent over two years.

Despite assurances, Canada may be at the front end of another downward 1970s-1990s deficit cycle

Despite Morneau’s latest assurances, Canada may be at the front end of another downward 1970s-1990s deficit cycle, which starts with deficit spending during a period of economic growth (like we’ve seen with the current government). The government then relies on continual economic growth to try to balance the budget. Then, when the inevitable recession arrives, federal finances are thrown back into deficit, sometimes deep deficits. Debt accumulates throughout with mounting interest costs, and federal finances spiral out of control.