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Minister of Finance Chrystia Freeland speaks at a press conference in Ottawa, on Feb. 17.PATRICK DOYLE/Reuters

Bringing Ottawa’s deficit back down to size might not carry the same heroic cachet as rapidly expanding it to stare down a pandemic. But the task might be nearly as important for the country’s long-term economic health – and more urgent than some policy makers would like to think.

The federal government goes into Thursday’s budget coming off a year in which it planned for a deficit of $145-billion (based on its mid-December update). While that is less than half the size of the previous year’s deficit, it’s many multiples larger than the $20-billion or so that this same government targeted in the years prior to the pandemic.

This despite evidence that in many key respects, the Canadian economy has recovered everything that it lost in the COVID-19 recession, and then some. The country’s struggles with high inflation are, to a significant degree, signs of an economy that has exhausted its spare productive capacity, and is running too hot for comfort. What’s more, the government’s still-aggressive spending adds fuel to that inflationary fire, by heaping more demand onto an economy struggling to keep up with supply.

The conditions give Ottawa all the licence it needs to wind down those deficits in short order – if it so chooses. The economy no longer needs the stimulation nor the protection that the government’s massive pandemic commitments provided.

Which isn’t to diminish the vital role that those generous supports played in safeguarding the economy and providing an environment for its remarkable recovery. That, in turn, has actually helped open a path for Ottawa to get its fiscal balances back to normal.

Nominal gross domestic product – the measure of the economy that most closely mirrors government revenues – grew by 13.1 per cent in 2021, nearly four percentage points higher than the government had forecast a year ago in its 2021 budget. Economists believe nominal GDP could grow by another more than 9 per cent in 2022, roughly three percentage points above the government’s most recent forecast in its December economic and fiscal update.

That translates to a revenue bump of roughly $25-billion in 2022 over what the government had originally projected.

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Now is an appropriate, even an opportune, moment for Ottawa to put the deficit genie back in its bottle, and re-establish firm fiscal discipline to keep it there, for the next rainy day when we might need it. Whether it has the foresight and the will to do so is another question.

Let’s face it, the government under Justin Trudeau has never, in its six and a half years in power, shown a tremendous commitment to keeping spending down and reining in its deficits. Even before the pandemic, its program spending rose annually at about triple the pace of inflation. Emerging on the other side of the COVID-19 crisis, this government has continued to show little urgency to undo the fiscal damage.

In its December update, the government looked ahead to the 2022-2023 budget – for all intents its first post-COVID-crisis budget – and foresaw a deficit of another $60-billion, more than triple the size of its pre-COVID deficits.

With the pandemic spending necessities having faded, the government faces pressures – both within its own ranks and from outside – to redirect its fiscal forces to new priorities. There’s a push for national dental care and pharmacare plans. There’s the major undertaking of the green transition. The war in Ukraine has sparked an urgent call to increase military spending. That’s all on top of the government’s commitment to fund affordable daycare, which begins this year.

There is talk of permanently expanding the unemployment insurance program, to cover more workers who don’t qualify under the existing structure. There are calls for substantial incentives to accelerate business investment. The provinces would love to see permanent increases to health transfers.

All are important and worthy issues. And the minority Liberal government’s new pact to govern with the support of the NDP will add extra pressure to move forward on some of these files. The government will have some tough choices to make.

But before it can responsibly make any of them, it needs to rebuild the fiscal foundation on which those choices will depend. There might not be as much time as we had thought to get that done.

The high-speed recovery has strained our economy’s limits, and brought the inevitable down leg in the economic cycle rapidly into view. Many economists are talking about the potential for a recession – in Canada and globally – as policy makers apply the brakes to try to quell inflation before it becomes a long-term problem. The war in Ukraine has escalated the risk of a major geopolitical shock that could throw the world economy way off course.

The rising risks are compelling reasons for the government to have some urgency in restocking its fiscal arsenal, for the day when it needs to come to the economy’s aid again. Ottawa’s ability to fund future wants and needs depends on it.

We may not have the luxury of putting it off for another year or two.

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