We need a clear path on how we return to balanced budgets: Former Quebec premier
Former Quebec Premier Jean Charest is warning Canada is living on a knife’s edge with its plans to run unprecedented peacetime deficits.
In a television interview Friday, Charest, now a partner at law firm McCarthy Tétrault LLP, said lessons learned from heavy debt accumulation in the past and the painful austerity measures instituted in the mid-90s shouldn’t be brushed aside when considering the potential implications of the massive federal spending plan.
“I think a lot of us who went through the years where the deficit and the debt was a big issue, are very concerned,” he said. “What we’re doing now, in Canada and in good parts of the world, is actually experimental. The amount of stimulus going into the economy, both in the United States, Canada and Europe, is unprecedented, and this is going to overheat the economy.”
The federal government plans to run a $154.7-billion deficit in fiscal 2021-22, which will steadily decline throughout the forecast horizon to a $30.7-billion shortfall in fiscal 2025-26.
Ottawa has pointed to the rock-bottom interest rate environment as one of the keys for the sustainability of that spending plan. However, Charest warned the sheer amount of stimulus could ignite inflationary pressures, pushing rates, and subsequently the government’s cost of borrowing, higher.
“It’s all predicated on low interest rates. If we’re going to overheat the economy, that would result, typically, in inflation. If inflation takes off, interest rates increase; if interest rates increase, we’re in a different world,” he said.
In the latest federal budget and the government’s Fall Economic Statement, the feds stepped back from an earlier pledge to use a declining debt-to-GDP ratio as a fiscal anchor, instead opting for so-called “fiscal guardrails” to keep the national debt from spiraling out of control. Charest said the feds should consider reinstituting that fiscal anchor in the short-term in order to reassure Canadians the government will not end up on a precarious path.
“We would be wise to set a fiscal anchor sooner rather than later – the government isn’t inclined to do that,” he said. “We need a clearly defined path on how we return to balanced budgets. Otherwise, we’re going to only increase the amount of risk to our economy and to our labour market.”