Sean Speer: Mark Carney’s cosmetic budget reforms can’t cover up Canada’s ugly deficit problem

The Carney government’s technical budget announcement yesterday offers some good and bad changes to Ottawa’s budgeting process. But Canada’s most important public finance question remains unresolved. Start with the good. Permanently moving the federal budget’s timing to better align with the parliamentary estimates process is a small but meaningful reform. It may seem wonky, but it reflects an important principle: Parliament, not the executive branch, ultimately appropriates public funds. Over the years, that constitutional responsibility has been diluted by the growing complexity and politicization of the budget process. Bringing the two timelines together reaffirms the central role of Parliament in scrutinizing and approving government spending. Then of course there’s the bad—and it’s bad. The government’s separation of “spending” and “investment” through its Capital Budget Framework will necessarily have the effect of obscuring the cost and trade-offs of government spending. Consider how broad the working definition of “investment” is: “capital investment is defined broadly as any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community, or another level of government. One can imagine it will involve backing out large swaths of federal program spending from the government’s presentation of so-called “operating budget.” The net result is the prime minister may be able to show progress on his promise to balance the operating share of the budget even if it requires an asterisk. Yet it would be a balanced budget achieved through redefinition rather than discipline. If there’s one redeeming aspect of these definitional changes, it’s that the Department of Finance’s briefing materials seem to indicate that the government will still consolidate spending and investment for the purposes of presenting the total budgetary balance. That’s good because no matter what the government calls it, ostensibly credit rating agencies and Canadians themselves will ultimately want to understand the true size and direction of the overall deficit. The whole exercise strikes at the heart of a problem that we’ve previously talked about at The Hub. The government’s spending ambitions exceed current levels of taxation. That’s the definition of a structural deficit. One way to think about it is as follows: Canadians pay about 90 cents of every dollar of federal spending through taxes and fees, and the government borrows the other 10 cents. The Trudeau government sought to square the circle through deficits. The Carney government now wants to solve it in part through these definitional changes. But the underlying problem persists: How much spending do Canadians want, and how much are they prepared to pay for? The question is directed to Canadians precisely because the answer ultimately lies with us. We’re the ones to blame for Ottawa’s deteriorating finances. Our appetite for new entitlement programs—including childcare, dental care, pharmacare, and so on—structurally exceeds our willingness to pay for them. Politicians are merely affirming our unsustainable political preferences. Carney’s Capital Budget Framework fits neatly within that trend. It’s the latest attempt to try to close the structural gap between revenues and expenditures while still protecting Canadians from necessary trade-offs. Justin Trudeau’s or now Mark Carney’s spending preferences with Stephen Harper’s tax rates cannot be reconciled by redefining spending and investment. It can only be resolved by Canadians choosing what they want from their government and what they’re prepared to pay for it. Changing the accounting rules or the timing of the budget won’t change that arithmetic. Sooner or later, Canadians will have to confront the trade-offs that successive governments have tried to paper over: smaller government and lower taxes, or larger government and higher taxes. There’s no third option that deficits or definitions can overcome. Until then, the Carney government’s budget reforms—however clever or technical—will remain cosmetic. They may change how the numbers are presented, but not the fiscal story underneath them. Canada doesn’t have a budgeting problem. It has a political one.