Is Deficit Spending Responsible in Canada?
Attending the workshop on whether deficit spending is responsible for Canada, I was able to learn things. I was able to learn four components of a credible fiscal policy including that it should be realistic, responsible, prudent, and transparent. The fiscal policy of a country is usually shaped by key stakeholders and entities including key stakeholders, media, financial markets, and citizens. For a public policy such as deficit spending to be responsible, it should be focused on creating and sustaining long-term fiscal frameworks that enables the long-term economic growth through controlling the accumulation of public debt. I learned that a responsible policy would be able to integrate the short-term fiscal actions towards stimulating the overall aggregate demand and cover potential output fluctuations. Based on these lessons, deficit spending in Canada might not be responsible as it does not assure the long-term efforts to cut on the public debt levels. However, the deficit spending could be responsible by the government placing permanent structures to contain the public debt level to a certain level. According to Page (2018), the deficit spending policy was hurting the economy as indicated by budgetary balance for the next 1 to 5 years. The first year projection figure on the budgetary balance was (4.8%).
Implications on Public Policy/ Democratic Governance
Unchecked deficit spending could have a negative impact on the democratic governance and the implementation of positive public policy. In Canada, the policy makers are always biased towards deficit spending. The policy makers should review the position of the budget deficit and tax revenues. If the policy makers want to improve governance and public service, they often reduce taxes, an action that increases the tax burden. With time, such a policy constrains the government’s ability to budget for their needs. When deficit spending becomes unbearable, the setting up of optimum fiscal public policy becomes difficult. Since, increased budget deficit limits the ability of the government to allocate resources adequately to the various development and recurrent budget in the government.
Based on the lessons learned from the workshop, the government should be maintain discipline while adopting public policy and actions such as tax reforms action that could reduce the government revenues. Deficit spending is not bad, but excessive, unstructured deficit spending could hurt the economic growth adversely due to the inability of the government to budget for their key development policy programs (Page, 2018). Countries such as Canada could use deficit spending to push for economic growth because of their positive fiscal outlook. Canada has a fiscal room to adopt deficit spending. However, Canada should follow the recommendations of IMF to reduce the debt to GDP, allowing the debt to GDP ratio to decline with economic growth, and the funding of the public investment. Such recommendations are relevant in containing the unsustainable deficit spending that could hurt the long-term economic growth and development of Canada.
The workshop on deficit spending gave me new insights on the need to structure government’s fiscal policies well. The government should follow the laid out fiscal rules and recommendations from the independent institutions such as legislative budget departments and fiscal councils. The fiscal rules include set out balanced budget guidelines, spending targets, and debt-to-GDP ratios. The independent institutions have non-biased reports on implications of deficit spending on the economy both in the short-term and long-run. Initially, I thought the policymakers are always swayed by political actors into making adjustments on the deficit spending limits and targets. Even though the political actors have influence, I learned that independent governmental agencies play a critical role in implementing effective fiscal actions. I also discovered that there is no relationship between debt and economic growth.
Page, K. (2018, March 23). Is deficit spending responsible? Workshop on Social Science Research, Concordia University, IFSD Institute Fiscal Studies of and Democracy, 2-70.