Deficit is not a dirty word

This column by Armine Yalnizyan was originally published by the Toronto Star on Wednesday April 6, 2022. Armine is a Contributing Columnist to Toronto Star Business featured bi-weekly.

Imagine if you were in charge of tabling the federal budget for almost 39 million people, amidst a global pandemic that rages still, a ruthless invasion of a democratic nation, climate-triggered disasters and escalating inflation.

You would quickly learn that, for the majority of Canadians, the top of mind concern is the growing tension between rising prices and wages failing to keep pace.

Affordability is the only metric that millions of us can afford to pay attention to right now. Not reducing deficits. Not growing the economy. Not climate change. Not bloodshed in Ukraine.

But neither can the federal government fail to address any of these global crises.

Yes, we need a plan that tackles newly urgent questions of how we defend ourselves against the growing number of increasingly merciless authoritarians in the global geopolitical mix. No, we can’t wait to act on the most inescapable challenge of all: mitigating the predictable chaos of extreme climate events.

But at the same time, we must address the spiralling costs of daily life that are squeezing too much life out of too many people.

You can achieve none of these goals without spending more. There is no magic wand of intention.

But business pages are full of opinions that say there’s already too much spending, deficits are dangerously high, and so any new spending must focus on supporting — surprise! — business, the self-proclaimed source of wealth creation.

Deficits, schmeficits, average Canadians are thinking. I need help! If you can cut interest rates to historic lows to save the financial system, why can’t you do anything about soaring rents? Or the fact that my surgery is being cancelled because we don’t have enough nurses? Or that I can’t afford to feed my family of five?

They are mostly right.

That’s because Canada isn’t a middle power. It’s an economic and fiscal superpower. Did you know that Canada has been among the top 10 biggest economies for most of the past half century?

Last year we generated more GDP than all but eight other nations, and are in a rarefied club of only 12 countries with the lowest borrowing costs in the world.

In fact, combining economic heft to creditworthiness, only Germany is our peer.

In that club of the super-credit-worthy, all other economies are smaller than Canada’s, including Australia, the Netherlands, Switzerland and Sweden.

But aren’t debt levels already through the roof?

No. Even amidst the pandemic, the federal government’s debt to GDP is the third lowest in the G7 (behind Germany and the United Kingdom).

Federal debt-to-GDP ratios (a measure of the “affordability” of debt) is approaching levels of the 1990s, but pandemics and wars don’t happen every day, and this isn’t the 1990s. Then, interest payments on the debt ate up 38 cents of each dollar of tax revenue. Today that’s down to seven cents on the dollar, the lowest in more than 50 years.

We’ll have plenty of warning before debt becomes unmanageable. And besides, globally there are more buyers than bonds for government-issued sustainable investments.

Investors want to invest in policies and nations that advance sustainability.

Why don’t our governments?

Business leaders often say that we shouldn’t burden the next generation with debt — but they also don’t want to raise taxes. Does that mean they think we can do nothing better? Yes, they want policies to grow the economy and shrink deficits, but not if it hurts their bottom lines. Often their vantage point is coloured by the fact that they’ve been asked to pay more taxes, after an extraordinary run of profitability.

It’s very likely we are under-taxing some of the most profitable businesses, so yes, apart from borrowing, there’s a fix for the “how ya gonna pay for it?” crowd.

But the net cost to the public purse in future also depends largely on where we put our money now.

Those urging governments to trim spending look only at the costs of programs, and not the fiscal dividends of acting.

We have generations of first-hand experience of “an ounce of prevention is worth a pound of cure.” We have a quarter of a century or more of data showing the returns on early learning and child care exceed the expenditure, in both the short and long run.

Similar returns could come from thoughtful spending on pharmacare and dental care. We need better evaluation of what we get for what we spend, not just knee-jerk “don’t spend” takes that view all government expenditures as going into a black hole.

We have more economic and fiscal strength than we think, but — like any muscle — maintaining strength requires building on strength.

We can build on the strengths of a new form of fiscal federalism that emerged from the past year’s Early Learning and Child Care Agreements and tackle the crises in long-term care and health care. As we have learned, building a better care economy impacts both how much money you have in your pocket and creates better jobs, addressing affordability from both sides of the equation.

We can double down on the strength of federal purchasing power, by bulk purchasing the 250 most commonly purchased drugs on public formularies across Canada. We’ve talked about a national pharmacare program for so long: we could finally reduce costs and relieve the burden on provincial governments’ statutory commitments to an aging population.

We have powerful examples of where community benefit agreements builds community as it builds community infrastructure, strengthening individual lives and paying huge returns to the public purse. We just don’t flex those policy muscles very often. Why not?

We don’t often think of ourselves this way, but we are objectively one of the most economically and fiscally powerful nations on earth. We can be and do whatever we want.

While a cheque in the mail or a temporary tax cut is a quick way to say you’re doing something about the current pinch of inflation, we can make life more affordable in Canada for the long haul, by improving the foundation of the quality of life for all through the care economy, ensuring that housing doesn’t eat our lunch, and improving the pay and working conditions of more jobs.

None of that stops us from also spending big on climate change and defence. In fact, these measures create the conditions for more robust growth that can fund these aims.

As the president of Ukraine has repeatedly asked his people, and the people and governments of the West: What will you do with your power, when you have the power to do?

It’s an existential question that will be answered tomorrow.