This week the Parliamentary Budget Officer (PBO), reported that expenses for the first quarter of fiscal year 2016-17 (April – July, the government’s fiscal year begins in April), were $3.4 billion higher than the same quarter of 2015, or 5.7 per cent higher, the highest in 6 years. Why were they higher?
- A pillar of the Liberal party’s campaign platform leading up to the October election was the amount of infrastructure spending the Trudeau government would do in order to stimulate a sluggish economy that hadn’t seen any dramatic lift in many years. In order to do so, a government must typically run a deficit, or run a debt. As such, part of this extra spending was $1.22 billion into infrastructure – not sure what exactly or where though.
- The PBO noted that some of the spending was due to leftover commitments by the Conservative government (an interesting part of governing that seems obvious in practice but looked over when it comes to judging a politician’s time in office…. Like how Trump accuses the Obama administration of creating a vacuum for ISIS in the withdrawal of US troops from Iraq, when in fact the US troops were sent home because of an agreement that the previous administration, under George Bush, had reached with the Iraqi government… But I digress). And what, or who, is a Parliamentary Budget Officer (PBO)? This role provides independent analysis of government spending and the nation’s finances, relating it to the government’s plans and economic trends. Keyword, independent. The role is not influenced by the sitting government, and office of the PBO is often referred to as the “budget watchdog.” The current PBO, who was appointed in 2013, is this guy.
- The remainder was categorized as “grants and contributions to outside entities.” BNN reported that an assistant parliamentary budget officer said that the increase was also due to an increased child care spending, in addition to infrastructure spending.
How does a government actually run a deficit, or take on debt?
Traditionally governments finance debt by selling or issuing government bonds, aka borrowing money.
Not related to this story per se, but I believe of interest, is:
How does a government actually take on debt? Where does this money come from when, who does the government borrowing money from?
The answer is that traditionally governments finance debt by selling or issuing government bonds, aka borrowing money. These bonds are largely purchased by foreign nations – and this is the conversation that you heard during Monday’s night Presidential debate when Trump kept going on and on about the trillion dollar debt in the US. The debt is largely owned by China, but the election conversation is mostly around how the candidates’ tax plans will lessen or enlarge the existing government deficit.
The thing about government debt, is that is it both a good and bad thing. Good because governments will allow debt to grow so that they can put money into the economy and stimulate growth. Bad because too big a deficit could cause a government to raise taxes in order to pay it, or default on their debt obligations (as we saw with Greece in July 2015, aka, Grexit).
What’s the status of the current Canadian deficit?
The Trudeau government estimates that at the end of fiscal year 2016-17, we will have a deficit of $29.4 billion, which is far more than expected.
CBC says: Last year’s Liberal election campaign platform promised annual deficits of no more than $10 billion over the next couple of years to allow the government to invest billions in infrastructure projects as a way to inject some life in the economy.
Read the original article by The Canadian Press, published on September 29th 2016 in Macleans, here.
Feature image of Prime Minister Trudeau in Parliament, via Macleans.
