Deficits: Not Always a Bad Thing

Andre Carrel
By Andre Carrel
September 8th, 2015

The focus on deficits in the federal election campaign, triggered by one political party’s call for a major infrastructure program to be financed over a three year term by way of deficits, highlights the mindless state of our politics.

The proposal is to spend money in excess of what is collected by taxation, royalties, and all other sources of federal revenue combined, to upgrade the national infrastructure. Roads and bridges tend to be given as examples of what constitutes a national infrastructure, but the term embraces the fundamental facilities and systems that serve the nation’s publicly owned assets. The infrastructure is the foundation of a nation’s public and private economy.

It is most revealing that the political arguments triggered by that announcement are on the deficit and not on the infrastructure. A reference to deficits in the context of government finances insinuates a lack of fiscal responsibility. A budget deficit does not suggest that the government’s debts exceed the value of its assets (it does not mean that the mortgage is greater than the value of the house). A budget deficit means that the projected expenditures exceed the anticipated income. There are conditions under which a budget deficit is not only reasonable, but may in fact be a responsible way to proceed.

A citizen with a balance on a line of credit left owing at the end of the month has spent more money than he has earned. Or, to put it another way, he is running a deficit. There comes a point at which expenditures that exceed revenues are irresponsible; this holds true for citizens as much as it does for nations. However, it is equally true that holding expenditures at a level below revenues as a matter of principle without regard to prevailing conditions, amounts to irresponsibility.

To evaluate the prudence of running a budget deficit one needs to examine and evaluate the reason for doing so. When the condition of a personal asset is defective and in need of repair, the responsible decision is to fix the problem even if it means running a deficit by taking out a loan. When the roof leaks or the car brakes fail, the responsible decision is to fix the problem. Setting out buckets to catch the drips in the living room or driving slowly, and avoiding streets with stop signs is irresponsible. If the necessary cash is not at hand, and if the credit rating permits it, borrowing money to fix the problem, in other words running a deficit, is the responsible way to proceed.

Voters may agree or disagree with proposals to run a deficit or a surplus. The national budget’s bottom line in itself is arguably less important than the budget considerations, on both the revenue and the expenditure side, that result in the bottom line.

The answers we ought to seek from those who seek to represent us in Parliament for the next term should inform us about their assessment of the reality as they see it. What is their assessment of the national infrastructure? Is it in good shape? Are there particular aspects of that infrastructure that are in need of attention? If so, what are these assets and their problems? What can or should the nation do to remedy these problems? What are the priorities? What are the costs?

The question of financing is secondary to the question of need. This does not mean, however, that the question of financing does not merit being debated. How should the nation pay to fix the problem? Should we raise taxes? Should we introduce new taxes or user fees? Should we borrow the needed funds to be repaid in future years? Debating the merits of a deficit and the terms for repaying it should be the last item in a discussion on the national infrastructure, not the leading one.


Categories: Op/EdPolitics

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