Federal budget balanced on the back of crumbling infrastructure

Canada is back in the black. Last week the federal Conservative government released Canada's first balanced budget in the better part of a decade, and just in time for another federal election at that.

Canada is back in the black. Last week the federal Conservative government released Canada’s first balanced budget in the better part of a decade, and just in time for another federal election at that.

Sure they had to sell some shares in General Motors prematurely, and are counting on some savings from collective bargaining changes that the union has promised to fight tooth and nail to balance the books. But such details aren’t the point.

Canadians like balanced budgets. I like balanced budgets. Living within our means is good policy and – creative accounting and crass electioneering aside – it is a good news story that the federal government is at least close to breaking even. Canadians grew tired of seeing 37 cents of each of their tax dollars going towards servicing the government debt as they did in 1991. Through a combination of fewer and smaller deficits and (more importantly) lower interest rates today we only pay 11 cents on the dollar towards interest on debt.

The government is so proud of its accomplishment that it recently announced its intention to decree – through a legally unenforceable “balanced budget law” – that from this point forward every future federal government will be required to balance its books as well. Where these high-minded principles were the last seven years when the same government ran deficit after deficit is yet another detail that is beside the point.

But is our obsession with avoiding deficit spending as prudent as it first sounds?

As with personal finance, there is good debt and bad debt. If your bills exceed your income month after month it is probably a good idea to re-evaluate your habits. The same goes for government spending. “Structural deficits” – where governments is paying out more than it is taking in during good economic times – are the political equivalent of taking a vacation on the credit card. Far too much public debt in Canada is “bad debt” and it is wise to not fall back into old habits of running deficits year after year with no plan to return to surplus.

But sometimes making an investment in the future comes at the expense of a little red ink in the present. For example, a university education usually leads to a higher income. But it is expensive.

You could “pay as you go” by going to school part time or saving. The problem with this approach is that you are just delaying the higher pay that the education provides. As prudent as “saving” for your own education sounds, the reality is that some amount of borrowing is probably the better economic choice in the long term.

Purchasing a home is similar. You could rent while saving the money for a home, and maybe sometime next century you might actually accumulate enough money to buy without the need for a mortgage. In the meantime you’ve given tens of thousands of dollars to a landlord that you will never get back. Debt accumulated to purchase a reasonably priced home that is within your means – providing you can bear the risk of rising interest and falling house prices – is “good” debt.

Deficit spending by government on infrastructure is similar. As cliche as it has become, it is true that quality public infrastructure pays economic and social dividends. Schools, hospitals, roads, clean energy infrastructure and sewage treatment plants benefit society for years to come.

But the contractors who build them and the suppliers who provide the material want to be paid at the time of construction, not over the usable life of the facility. So we need to come up with the cash up front to pay for it. It is not unreasonable to borrow a bit – particularly at the rock bottom interest rates enjoyed by government that you and I could only dream of – provided you have a plan to pay it back.

Our obsession with getting into and staying in the black is probably partially responsible for the growing infrastructure deficit we have in this country. As a consequence we have become a country of crumbling roads, inadequate mass transit, and aging infrastructure. It may not seem this way here in the Yukon with our healthy capital budget, but it is a reality for a good part of the country.

Municipalities are the ones dealing with the problem, but only the provincial and federal governments have the taxing power to fix it. Infrastructure spending was on the decline for decades before it began to bounce back after the recession of 2008.

Not only does infrastructure spending benefit Canadians in the long run, it can also give a needed boost to the economy. Investments in infrastructure has a high “multiplier effect” – a measurement used by economists to gauge how much a dollar of spending reverberates through the economy.

To its credit the government has increased infrastructure spending in recent years after a long period of cutbacks, but not by nearly enough. The government may be able to boast on the campaign trail that it has balanced the books, but it has come at the cost of continuing a vast infrastructure deficit that will hobble us for years to come.

As with so many other things in democratic politics, though, politicians can only be blamed for giving us what we ask for. If its balanced budgets we want, balanced budgets we will have.

Kyle Carruthers is a born and raised Yukoner who lives and practises law in Whitehorse.