It’s only the first day of Deficit Watch and already its not looking good for the Conservatives, with leading economists and the International Monetary Fund casting doubt on Jim Flaherty’s overly optimistic projections of future economic growth. In short, it will take the Conservatives longer to retire these deficits than they’re admitting.
A day after Finance Minister Jim Flaherty tabled a budget projecting that the global and Canadian economies will rebound moderately next year, the International Monetary Fund has thrown a spanner into the assumptions that underpin the government's numbers.
The latest global outlook is in line with Canadian economic expectations in Flaherty's budget for this year -- a 1.2 per cent gross domestic product retreat -- but the two part company over the expectations for next year.
The IMF says Canada's economy will begin to grow at a tepid 1.6 per cent pace, while Flaherty is counting on a 2.4 per cent advance followed by even stronger momentum, to make good his prediction that the government will balance its books four years from now.
Remember the days of Liberal governments regularly running healthy surpluses, a practice Deficit Jim thought was just horrible, but most saw as sound financial planning (particularly in hindsight)? That wasn’t by mistake.
When the Liberals took office from the Mulroney Conservatives (and inherited a big deficit by the by), it had been common government practice for a much larger than forecast deficit to be revealed when the books were closed at the end of the fiscal year. That was because they'd made a habit of basing their budget projections on the most wildly optimistic projections of future growth and revenue. The best-case scenario. It made the bottom-line look better on budget day but it was artificial, a mirage. They wanted to hide the true situation until less people were watching.
When the Liberals and Paul Martin moved into the finance portfolio he changed this practice, adopting a policy of basing his budget projections on an averaging of the more conservative forecasts of both public and private sector economists, essentially erring on the side of underestimating potential growth rather than overestimating.
This policy, along with the contingency reserve (also abandoned by the Conservatives), allowed for a budget cushion should growth be hampered. As a result, each year the Liberal government was able to do a little better fiscally than anticipated, allowing leftover funds to bring down the inherited deficit faster, and then be targeted to a combination of debt repayment and priority program spending. And when the September 11 attacks put severe fiscal demands on the government overnight, we were able to bear them without deficit.
While this all seemed like sound financial planning to me, the Conservatives disagreed. They thought all this fiscal prudence was a totally bad idea. Overtaxation, they'd cry. (ed: So do they consider a deficit undertaxation then?) They killed the contingency reserve. And ironically, given this Flaherty budget, which uses overly rosy revenue projections to downplay and hide the true size and length of this deficit, they also ran in 2005/06 on Truth in Budgeting, and bringing transparency back to the budget process.
Yet another Harper broken promise, as Deficit Jim fiddles with the numbers to cover-up the true size of his deficit. (He knows what he's doing there) I hope the finance committee will put Flaherty on the hot seat over his attempts to cover-up the true scope of the deficit. Kevin Page would be a good witness too. Recommend this Post on Progressive Bloggers