C. Scott Clark is former federal deputy minister of finance and Peter DeVries is former federal director of fiscal policy.

If Canadians had wanted a Conservative government obsessed with deficit elimination, they would have elected one. Instead, they elected a Liberal government that committed to running the government's finances in a "realistic, sustainable, prudent and transparent manner."

November's economic and fiscal update confirmed "the government's realistic approach to fiscal management, based on the principles of sustainability, prudence and transparency." In the Speech from the Throne, this was replaced by "a fiscal plan that is responsible, transparent and suited to challenging economic times."

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This ambiguity suggests that the government is not sure how it intends to implement its "fiscal management" strategy. This can cause real problems; it needs to be clarified.

On Monday, Finance Minister Bill Morneau tabled a ways and means motion to implement a reduction in the tax rate to 20.5 per cent from 22 per cent for those earning between $45,282 and $90,563, and to increase the rate to 33 per cent for taxpayers earning more than $200,000.

During the election, the Liberals had claimed that these tax changes would be revenue neutral. The Finance Minister has now acknowledged that there could be an annual shortfall of about $1.2-billion. This is not a large error on a budget of $400-billion, but it has become a major political and policy problem, when added to the worsening deficit outlook.

In his November update, the Finance Minister acknowledged that the outlook had worsened substantially since the 2015 budget. Even so, the Finance Department projections were far more optimistic in the outer years than those released earlier by the Parliamentary Budget Officer.

This raised questions about whether the Finance projections represented a "realistic" assessment of the government's fiscal prospects. In the update, the department provided no explanation for why its projections were so much stronger than the PBO's. After the update, the PBO discovered that Finance used higher revenue elasticities for the three major tax components (corporate, personal, and GST). No justification for these assumptions has been given.

Using the more "realistic" PBO forecast and including the revised costs of the election platform results in a medium-term deficit forecast of $15-billion to $20-billion annually.

On Monday, the Finance Minister reaffirmed the government's commitment to balancing the budget . This would require that nominal GDP in 2019 be $100-billion higher than in the PBO forecast. This is not going to happen.

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Every time the Finance Minister says he will balance the budget by 2019-20, his fiscal credibility evaporates a bit. Everyone knows the deficit is going to be much higher than the $10-billion campaign commitment. Some election promises can be delayed, but there is little room for more cuts, and tax increases are out of the question.

This raises two questions: Why does the Finance Minister say the deficit will be eliminated, and why does balancing the budget matter?

The only answer seems to be that the government is confused about what kind of fiscal policy to pursue. The Liberals were willing to accept "modest" deficits during the campaign, but only if they could balance the budget in 2019-20. But now the deficit isn't going away, and the government seems confused about what to do.

Neither the Prime Minister nor the Finance Minister seem to understand that their election commitment to "sustainable" fiscal management does not require balancing the budget at some arbitrary date. The government must demonstrate fiscal discipline. But there are different approaches on how to do this. There is the previous Conservative government's approach: namely, that all deficits are bad (except during recessions). This approach's adverse consequences on the economy over the past five years are clear.

"Sustainable" fiscal management allows the government to take actions to support economic growth subject to the constraint of maintaining a low and stable or declining debt burden. This constraint will impose a check on the acceptable size of the budget deficit relative to the size of the economy. Higher than 1 per cent of GDP ($20-billion) would violate that constraint, and the government is getting close to it.