Can the Conservatives actually balance the federal budget within 10 years?

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The Conservatives are promising to balance the federal budget within 10 years without cuts or tax increases, even as they add tens of billions of dollars in new spending on top of the 2021 budget.

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Arithmetic barely works, but politics can be problematic. And the party’s ability to deliver on its balanced-budget promise has largely been defined as a “cut.”

Complicating the Tories’ balanced-budget promise is a parallel commitment to increase Canada Health Transfers, or CHT, by at least 6 percent each year across provinces—far more than any possible scenario for Ottawa’s revenue growth. – Putting additional pressure on the rest of the federal budget.

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For now, conservatives are not explaining how they propose to balance the budget over the coming decade. NS expensive platform The party released Wednesday only gives detailed estimates until fiscal year 2026, when the Conservatives say the federal deficit will drop to $24.7 billion. (The party says its detailed estimates do not go ahead because the fiscal baseline outlook from the parliamentary budget official does not go beyond fiscal year 2026.)

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The Tories say they will end the deficit by fiscal year 2029, but don’t say how, beyond a promise to avoid cuts and their platform-costing document says they will “run a disciplined government that will look to the future.” limits the growth of spending.”

However, as the chart below shows, fiscal discipline will be of late. would see a five-year deficit of a Conservative government that rivals the resulting liberal fiscal plan.

However, the Conservative plan proposes keeping a tighter lid on spending, with $53.8-billion in new spending and incremental loan charges by fiscal year 2026, far less than the $80.7-billion that liberals will spend on program spending over those five years. And the loan fee added as a result. (The Liberals are also proposing tax increases that pay for some of those additional outlays.)

Conservatives also say that they will not copy the liberals’ habit of spending unexpected increases in revenue. As the chart below shows, in the two full fiscal years before the pandemic, the Trudeau government boosted spending because revenues exceeded its earlier estimates. Had the Liberals stuck to the fiscal plan set out in their 2016 budget – already based on high spending – the program would have spent more than $14 billion less in fiscal 2019.

The Conservatives certainly aren’t counting as spending cuts they will take immediate action to reverse Liberal spending priorities in future years, especially billions of dollars for child care.

Despite several questions, the Conservatives have not specified what the party considers to cut spending. It may seem like a question of semantics, but it could amount to ongoing differences in the billions of dollars over time.

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A general definition of spending cuts is anything that reduces the inflation-adjusted per capita budget of a program. This means that dollars spent on any government program would have to increase every year (just under 3 percent given current inflation and population trends) to keep the per capita value the same. Anything less than that increase means the value shrinks — in other words, it’s a cut in spending.

A less accurate way to cut spending is to consider only raw dollars spent. If $1 billion was spent last year, and $1 billion has been spent this year, there is no spending deduction (even if inflation has reduced the value of that spending, and even if it is taken by large numbers). had to be spread among the people). For example, many provincial governments have postponed their increased education spending, even though the rate of increase in spending was less than necessary to keep pace with population growth and inflation.

Several financial experts interviewed said economic growth would provide room for substantial fiscal maneuvering to balance the federal budget in the coming decade. But that assessment comes with important caveats.

Economist Trevor Tombe of the University of Calgary Calculation That annual real growth of 1.8 percent in GDP by fiscal year 2031 would increase federal government revenue from $452.1-billion to $452.1-billion that year, the PBO forecast for fiscal year 2026.

The PBO is also forecasting federal program spending to be $404-billion in fiscal year 2023; If that spending increases with inflation and population growth, at a rate of 2.9 percent annually, it will increase to $522 billion by 2031. Add $42 billion to debt servicing costs, and the expense comes in at just a hair under $565 billion in projected revenue.

Barring a significant economic contraction, the federal budget could actually reach equilibrium by 2031.

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However, this would require a conservative federal government to freeze real spending for half a decade. Any new program would have to be offset by this reduction. Economist Don Drummond, a former senior federal finance official, scoffs at the notion that any government will freeze the budget for such a long period. “They get elected to work, and it costs money to do something,” he says.

Eighty years ago, Ottawa somewhat eased its debt burden by keeping inflation-adjusted spending per capita flat for the better part of two decades, as the chart below shows.

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