"Money Often Costs Too Much" – Ralph Waldo Emerson
John Gilmour · Former member (retired) of Canada's intelligence and national security community · Posted: May 13, 2020
While not necessarily warranting the epithet of ‘hero’ as do the countless numbers of front-line communities that are supporting the rest of us through these most unusual of times, senior political leaders are responding as best they can to navigate uncharted health and socio-economic waters resulting from the covid-19 pandemic. Governments are doing so on the basis of two parallel tracks: Procedures (and enforcement provisions) to “flatten the curve” of covid-19 cases and to ensure healthcare workers have a capacity to respond without being overwhelmed. The second entails strategies and programs being implemented to address economic challenges being faced by individuals, community support services and commercial entities as a result of measures being taken to flatten said curve. This is involving daily announcements of several billion dollars here, or hundreds of million dollars there, required to fund specific programs.
With increasing optimism, governments are suggesting there is a speck of light at the end of the tunnel. So it is probably not a coincidence that some voices are beginning to ask, “What’s all this going to cost” and more importantly “How do we pay for it?”
Last week, Canada’s Parliamentary Budget Officer Yves Giroux announced that the federal deficit for the current year will likely reach $252 billion as a result of funding of covid-19-related programs, a loss of economic activity (tax-generated revenues), and declining oil prices. This is ten times initial deficit projections for the year. It may be even more the longer the health risks associated with the pandemic continue and the federal government is obliged to respond in kind. And this is just the annual deficit for the year (revenues vs. spending in a single year). According to Statistics Canada, the total government debt (accumulated annual deficits) for 2019 was estimated at $768 billion. So we’ll be approaching the $1 trillion debt mark if current projections are maintained. Prime Minister Trudeau’s historical narrative has been that Canada’s debt to GDP ratio is in good stead relative to other G7 countries, so deficit financing of both pre-covid Liberal programs, and current pandemic-related initiatives, is all in order. It remains to be seen if and how Mr. Giroux’s projection that the debt-to-GDP ratio will rise from 34 percent to 48 percent undermines the PM’s accounting, and the degree that government revenues are obliged to fund said debt going forward, as a result of having to borrow all that money.
Money, as they say, doesn’t grow on trees. So what are the options available to the federal government to get its economic house back in order? Assuming the junior Trudeau doesn’t want to replicate the outcome of his father’s solutions that resulted in unparalleled inflation in the1970s, there are a few.
First, raise taxes. Given the hit that personal and commercial economies have taken as a result of the pandemic, this would be political suicide, at least in the short term. But, never say never I suppose.
Second, cut government expenditures. Those of us who are long in the tooth have likely experienced comprehensive federal deficit reduction initiatives at least once or twice. Characteristically, this involves an ‘x’ percent across-the-board reduction within all government departments and agencies. In addition to having to take a hard look at current programs, typically the low hanging fruit usually involves a freeze of some kind on travel, hiring, and –unfortunately for the PDI-training. While likely not sufficient to bring the figures back to pre-covid numbers on its own, outside of Ottawa, such initiatives make sense in terms of optics. How deep the cuts, and for how long, remain to be determined.
It is this option where the capacities of Canada’s national security agencies are most at risk. The Department of Defence, unfortunately, often suffers more than others as planned (and already deferred) capital programs are further delayed or cut outright, in additional to cuts to operational funding. Poor DND is an easy target, as I would suggest that, from a political standpoint, most of Canadian society wouldn’t give funding hits to it a second thought. Consequently, deferment or cuts to high profile capital initiatives such as the Navy’s frigate program, the need to procure arctic-capable vessels, replacement of the F-18 fleet, and the need for updated northern warning systems, could all suffer under a worst-case scenario. Operationally, training exercises, the normal bread and butter of day-to-day CAF activities, have been subject to debilitating cuts in the past, to the point where necessary operational proficiency becomes suspect. The ability to send CAF forces abroad for whatever broader policy purposes becomes more challenging,
Canada’s security and law enforcement agencies have also been subject to similar cuts in the past. Because corporate-support mechanism (IT, facility management, financial systems, etc.) are largely imbedded, operational capacities most often suffer. Non-domestic operational platforms are downsized or eliminated, capacity building or engagement with key partners is reduced, the hiring of new officers is held in abeyance creating increased workloads for existing officers at a time when ‘boomer’-aged officers are retiring in droves. Cuts to capacities would come at a time when threats posed by terrorism (old and new) and transnational crime continue unabated, while threats linked to foreign espionage and influence and increased concerns related to state-on-state conflict are making a return. At a time when there is compelling justification to increase resources, cuts to capacities would be counter-intuitive.
Third, do……..nothing. There will be no measures taken to pay down the national debt. As was the case for decades after World War II when Canada faced similar fiscal challenges, the assumption is that economic activity and growth will return to normal levels, that annual deficit levels will decline, and the debt-to GDP ratio will correspondingly improve and return to more acceptable levels. Simply put, while the debt and the costs to service it may be growing, the economy will –hopefully- grow faster. It may just take decades to get back to acceptable numbers. Taking a page from the New Deal, governments often introduce infrastructure programs to help stimulate both national and local economies in times like these. Will the federal government have to borrow even more money if so? Let’s see if that happens.
Canadian politicians are to be commended for taking unprecedented measures on a timely basis to ensure the physical and economic well-being of their constituents required as a result of a threat that came out of left field and is transnational in nature. That said, the total economic / fiscal impact of the covid pandemic will not be known for some time yet. As far as the ability of the economy to recover as a means of ultimately paying for covid-related initiatives in what quite possibly may be a new reality, a lot of assumptions are being made that the numbers surrounding Canada’s future economic growth will look much like the old reality.
Time will tell.
Disclaimer: The views and opinions expressed in this blog post are those of the authors and do not necessarily reflect the official position of the Professional Development Institute of the University of Ottawa.
John Gilmour joins the PDI team after a thirty-seven year career in the federal government in positions of growing responsibility. His initial professional experience was with Transport Canada and the management of Canada’s major international airports. This included serving as project manager and analyst for airport security programs. This led to a two-year assignment to the Security and Intelligence (Operations) section of the Privy Council office as a senior policy analyst, in support of the office of the National Security Advisor to the Prime Minister (NSA).
From there John joined the Canadian Security and Intelligence Service (CSIS), where he served in a variety of branches, most recently as the Head-Strategic Planning and Operational Analysis with the Service’s Counter Terrorism Division. Although retiring in 2018 from the Service, John continues to be retained as a senior advisor for that unit.
John has a BA from Carleton University (Ottawa), and a Masters and Ph.D from the War Studies Program of the Royal Military College of Canada (Kingston).
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