Wednesday, May 27, 2009

Surprise, surprise: the deficit is going to be bigger than expected

Finance Minister Jim Flaherty is starting to prepare Canadians for bigger deficit numbers than the government predicted when it tabled its budget in January.

This isn't surprising - or shouldn't be to anyone who's a fan of public choice. We should expect to see (and I've predicted) the same thing happen to the McGuinty government's projected deficit in Ontario, and to any other government expecting a deficit this year.

Realistically, and thankfully, Canada's debt-to-GDP is the smallest in the G7, so borrowing is cheaper for us than it is for most. That doesn't mean that expanding or continuing budgets are excusable, though.

For all the rigmarole surrounding Ignatieff's assertion that Ottawa is going to have to raise taxes (or make spending cuts, but thankfully the Tories didn't attack him for that half of the comment), he's right. Getting out of deficit isn't going to be easy or painless for Canadians, and as much pressure as possible needs to be put on the Conservatives to stop piling up the debt so that they don't have to be the ones to make the cuts.

UPDATE: Finance minister Jim Flaherty now says that the deficit will be $50 billion this year, up from the original estimate of $34 billion. This alone will raise the five-year deficit up to $102 billion, barring unexpectedly high economic growth over those years. I have a hard time believing it will happen but realistically no one knows.

Cross-posted to the Shotgun.

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