Politicians beware – deficit bites in the end: Jack Mintz in Finansposten

Terrified of food, housing and gas inflation, voters begin to see that deficits have costs, writes Jack Mintz in the Financial Post. Below is an excerpt of the article, which can be read in its entirety here.

By Jack Mintz, November 23, 2021

Recent headlines that the Albertans last year, for the first time in 50 years, received more federal monetary expenses than they paid in taxes may indicate to some that the Albertans may not have been treated so unfairly anyway. But that is a mistaken argument. With 2020’s federal spending amounting to $ 635 billion, more than double the $ 300 billion Ottawa collects as revenue, approx. every body in Canada received more in expenses than they paid in taxes. But that’s only because a gigantic tax bill was deferred. It will eventually decay and must be worn. There is no free lunch.

Expenditure tension in 2020 was necessary to keep the economy afloat during the pandemic. Ultimately, however, the deficit that financed it will have to be covered by higher taxes, fewer expenses or more loans. If Canada goes back to the good old days when every Albertan paid $ 4,000 in net transfers to other provinces – almost nine percent personal income tax – the Albertans will be hit by more than their fair share of those costs.

My colleague at the School of Public Policy at the University of Calgary, Robert Mansell, is dean among economists when it comes to thoughtful analyzes of federal-provincial transfers. Going back as far as 1995, he and his co-author, Ronald Schlenker, have experimented with different approaches to taking federal deficits into account when measuring interprovincial transfers. This is not as simple as you might think. It depends on how deficits are handled in recent years. When fiscal policy tightens, governments typically avoid raising taxes or cutting spending on the poor. If so, richer provinces like Alberta, Ontario and British Columbia will experience an increase in transfers to other provinces. On the other hand, if the federal government throws out policies that benefit the rich, such as electric cars or licensing restrictions, net transfers from richer provinces may well fall.


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