Budget 2022 and Canada’s incredible disappearing deficits

The annual deficit has shrunk by $275B in two years, even as the government announced new initiatives. What gives? Economist Jim Stanford looks at the red line of Budget 2022.

Before we’d ever heard of COVID, there was a time when the first question asked of any Finance Minister delivering their budget was always: “Is it balanced?” Those days are long gone, and the pandemic is a big reason why.

Federal Finance Minister Chrystia Freeland delivered her 2022-23 budget this week, with a bottom line that is $53 billion in the red. Once upon a time that would have been considered a big deficit, but no longer. Very few of the questions she faced in the post-budget scrum had anything to do with the deficit.

Even the Opposition seemed half-hearted about attacking the red ink. Conservatives complain about Liberal “big spending,” but then propose their own measures (including tax cuts) that would produce a virtually identical deficit.

Best of all, that $53 billion deficit is melting away before our eyes anyway – without pompous rhetoric about “fiscal rectitude,” or without painful austerity. This year’s deficit is less than half the size of last year’s, which in turn was one-third the previous deficit.

The annual deficit has shrunk by $275 billion in just two years, even as the government announces new initiatives: like $5 billion for the dental care program it negotiated with the NDP.

What gives? Why is the deficit disappearing, both in dollars and in political importance? It seems that we’ve all learned a thing or two about budgets since the pandemic struck.

The first is that governments have virtually unlimited power to spend big when they need to. They did it before: like in the Second World War when no politician would dare to complain that Canada’s military effort was “too expensive.” And they did it again during COVID. Ottawa boosted spending $250 billion in one year to protect health, and keep Canadians working and in their homes; the provinces spent tens of billions more.

The second lesson is that infatuation with balanced budgets is misplaced and counterproductive. Economists have come to appreciate that deficits, even long-running ones, can play a vital role in supporting growth and jobs when other sources of spending (like business investment or exports) are inadequate.