Liberal Party leadership candidate Mark Carney speaks to supporters at a watch party for the 4 Nations Face-Off game between the United States and Canada on Feb. 15 in Ottawa. Mr. Carney's promise to balance the operating budget implies that if he were PM, he would have to make some cuts, too.Andrej Ivanov/Getty Images
The Wall Street Journal headline put it in black and white: It said Liberal leadership candidate Mark Carney “pledges return to balanced budget in Canada within three years.”
Whoa. That would be a big deal. It would mean wiping out the current $61-billion annual deficit while Canada is expanding defence spending and potentially facing hefty U.S. tariffs.
But that’s not what Mr. Carney meant.
He was talking about splitting the budget in two and balancing one part of it. That’s not the same as eliminating the deficit. But it does tell us a lot about how Mr. Carney would approach the country’s finances if he becomes prime minister.
For the record, The Wall Street Journal didn’t misquote him. Mr. Carney did indeed tell a crowd at a leadership campaign rally in Kelowna, B.C., last week that “my government will balance the spending budget within the first three years.”
That was a misleading way for Mr. Carney to refer to what he has in mind: balancing the government’s operating budget.
Perhaps Mr. Carney didn’t want to get into the weeds of government-accounting geekery to explain it. But let’s indulge in a bit of geekery here, because it gives some clues about the former central bank governor’s ideas on running the country.
If anything, Mr. Carney is indicating he has no intention of balancing the budget. In fact, he promised that Kelowna audience that if he were prime minister, he’d pour money into energy infrastructure, building up a trade corridor, and housing. “Build, baby, build,” he said.
But he regularly complains that Prime Minister Justin Trudeau’s government spends too much and invests too little. He’s been hinting at a different approach to spending control.
Mr. Carney’s plan, campaign aides confirmed, is to split the government’s budget in two.
The operating budget would cover what the government consumes day to day and year to year, including supplies, salaries, cash transfers to provinces, and benefits such as Old Age Security or employment insurance. The capital budget would include expenditures on assets such as military fighter jets and ships, or infrastructure such as bridges and ports.
That, by itself, is merely a change in the way the figures are presented. It won’t make the country less indebted. And it offers an obvious advantage to a politician promising discipline: “You show a smaller deficit,” said Randall Bartlett, deputy chief economist at Desjardins Group.
But Mr. Bartlett thinks it’s a good idea. So does Kevin Page, the former parliamentary budget officer and now president of the Institute of Fiscal Studies and Democracy.
Why? Because they believe it can encourage fiscal discipline even when the government borrows.
In Mr. Page’s view, it would allow easier scrutiny of how well the government is controlling operating spending, including the size of the public service and politically popular benefits. It could also underline the value of capital spending on long-term assets because government ledgers would record their worth.
That distinction is important at a time when Canada needs to embark on major capital-spending plans to beef up the military and infrastructure. When tough times hit, governments are tempted to cut back on longer-term expenditures.
Right now, Mr. Carney’s proposal to balance the operating budget in three years doesn’t sound ambitious. Mr. Page estimates that current fiscal plans would already bring it close.
But that’s before the impact of a trade war. A recession would make balancing the operating budget a lot harder.
On top of that, Mr. Carney has promised a middle-class tax cut and some kind of break for young adults. His promise to balance the operating budget implies that if he were PM, Mr. Carney would have to make some cuts, too.
But it also implies that he would continue to run deficits for capital spending. That would make it much easier to meet his promise to increase defence spending to 2 per cent of GDP by 2030. It’s the only way he could live up to his build-baby-build rhetoric.
That points to the economic direction Mr. Carney would take. But he has offered little information to flesh it out. And his notions of fiscal discipline don’t point all the way to the bottom line. Debt from capital spending still must be repaid, with interest. Details matter, and Mr. Carney hasn’t been all that clear about his plans.