How Bill Morneau is working from Paul Martin’s old budget playbook

The finance minster is using many of the same budgetary tricks that Paul Martin deployed—but there’s not much magic left

Finance Minister Bill Morneau at a pre-budget consultation in February 2016. (Sean Kilpatrick/CP)

Finance Minister Bill Morneau at a pre-budget consultation in February 2016. (Sean Kilpatrick/CP)

He haunts us still. Paul Martin, I mean; not the current prime minister’s father.

Bill Morneau is the most qualified finance minister Canada has had since Martin left Jean Chrètien’s government in 2002. The deficit slayer disappointed once he took the throne, but Liberals still revere him for saving the economy from ruin. So do many non-partisans: There was a reason Justin Trudeau had Martin bless his campaign.

It is likely, therefore, that Morneau, whose political career began last autumn when Stephen Harper dropped the writ, will be tempted to draw on the work of the master as he embarks on a new era of deficit financing. As Morneau discovered recently, that won’t always be a good idea.

One of Martin’s strengths was that he understood that the power of a magician’s sleight-of-hand flourishes when implementing the nuts and bolts of public policy. He enacted deeper budget cuts than electors ever imagined, but also insisted on substantial contingency reserves. These often were characterized as rainy day funds, but really they were spending caps in disguise. Martin would be left with billions of dollars in unallocated revenue at the end of each fiscal year, which was first used to narrow the budget deficit, and then went toward the debt. Presto: Canada’s debt was 43% of gross domestic product when Martin quit as finance minister, compared with 66% of GDP when he began in 1993.

As with any magic trick, Martin’s budgeting was less impressive once the audience deduced what was happening. This isn’t a criticism of the objective; Martin’s and Chrètien’s commitment to use stronger economic growth to reduce debt was far-sighted. But they never quite admitted what they were doing. That eventually hurt their credibility. By the time Martin recorded a “surprise” budget surplus of $20 billion in 2001, the opposition parties and the public had stopped giving the Liberals the benefit of the doubt. No one likes being manipulated, even if the manipulation serves a benevolent purpose. The Conservatives characterized Martin’s contingencies as little more than slush funds, a smear that stuck because of the white lies at the heart of the budget.

Now it is Morneau who is wearing the magician’s hat. The finance minister said on February 22 that the budget deficit in the fiscal year that starts in April will be $18.4 billion, compared with his initial estimate last fall of $3.9 billion. However, the new deficit projection includes an arbitrary $6-billion contingency buffer—twice the margin that Martin used to use. If the public wasn’t so bored of this game, Morneau might have caused a panic. Instead, he was widely ridiculed. “One can’t really help but think that some of it is actually used to modify public opinion to decrease expectations,” said Guy Caron, an NDP MP. “It’s a tactic that’s been used in the past by other Liberal governments.” Kevin Page, the former parliamentary budget officer, told the Globe and Mail that the “fudge factor” in Morneau’s figures is “overwhelming.”

Unfair? Only a little. Paul Boothe, a former senior public servant who now is a professor at the University of Western Ontario’s Ivey Business School, chastised “amateur” deputy ministers for making a fuss over a contingency that amounts to a sliver of the total budget. Any CFO of a private company would be fired for submitting a budget with so little money for worst-case scenarios, Boothe says.

If Morneau had put it that way, he might have avoided the second-guessing. His fiscal update lacks a satisfactory explanation for the unusually large contingency. It looks like he was copying the old Martin strategy: under-promise, over-deliver. The public is too cynical for that now. If Morneau and Trudeau doubt their ability to keep temporary deficits from becoming permanent, they should pass a law that requires them to keep the debt-to-GDP from expanding beyond a certain point. But this is no time for political games. The promise to spend to boost economic growth has been made. It is an acceptable risk based on sound theory. Now they must deliver.