It's probably not too early to worry, if only a little, about the federal deficit.
It's also probably not too early to worry that worrying too much about the deficit might unnecessarily crowd out all the other things we'll have to worry about after the COVID-19 pandemic finally ends.
If nothing else, the current crisis and the massive use of public funds to respond to the threat might forever bury the notion — promoted by generations of politicians — that a government's budget is neatly analogous to a household budget.
Governments, unlike people, are eternal (at least in theory). A government can accumulate and carry debt without necessarily having to worry about ever fully settling the tab.
A tradition of red ink
The federal government, for instance, has always carried some debt. At Confederation, with the new national government taking on the liabilities of the provinces, the federal debt stood at $75.7 million. The first budget was balanced, with $14 million in expenses matched by $14 million in revenue. But the federal government ran an annual deficit in three quarters of its first 150 years, according to a 2017 history of federal finances written by Livio Di Matteo, an economist at Lakehead University.
By 1914, the federal debt was $336 million. In 1945, after the Second World War, the debt had reached $11.3 billion. By 1972, after the post-war expansion of social welfare programs, the debt was $26.2 billion.
There was much excitement recently over the prospect of the federal debt reaching $1 trillion as a result of recent pandemic relief measures. But the accumulated debt almost certainly would have reached that mark at some point in the near future anyway.
By 2006, the debt was $481 billion. A decade later, it was $634 billion. Heading into this crisis, the debt stood at $685 billion.
What the debt-to-GDP ratio means
None of those numbers constituted a crisis. But the fact of public debt is not a licence to spend without limits.
If a government's debt begins to grow faster than the national economy, public finances can become unsustainable. Financial markets can lose faith in that government's ability to repay its loans, while higher interest rates can make it more expensive to carry the debt. Higher spending and debt-to-GDP levels also can limit a government's ability to respond to a crisis — like the one we're experiencing now.
In the 1990s, for example, the federal debt-to-GDP ratio reached 66 per cent and borrowing rates were nearly 10 per cent. Under pressure from international markets, Jean Chrétien's Liberal government implemented deep cuts to get federal finances under control.
Our current situation is not nearly that bad. Not yet, at any rate.
Heading into this crisis, the federal debt-to-GDP ratio was 30.9 per cent. In April, the parliamentary budget officer projected that — even after a sudden drop in economic activity and a surge in federal spending — the ratio would reach 48.4 per cent. Borrowing rates are around one per cent and are likely to remain low for the foreseeable future.
A fragile consensus on the need to spend
And there's little controversy right now about the need to spend public funds to support Canadians and keep the economy on life support. In fact, with a few exceptions, opposition MPs — including the Conservatives — have been calling on the government to do more and do it faster.
Still, some are beginning to express concerns about the rapid accumulation of debt and asking what might need to be done once this crisis has passed.
Watch: Conservative Leader Andrew Scheer calls on government to offer an economic plan
In the short term, priority has to be given to fighting a deadly virus and helping people and businesses get through the resulting interruptions to normal life. Failing to provide that support now would only make the situation worse.
But it's hard to know how events will unfold, or what the fiscal situation will look like once the health crisis has passed. In an op-ed published last week, economists Paul Boothe and Christopher Ragan explained why they see "good reasons to worry about Canada's emerging fiscal situation." As a counterpoint, three former analysts from the office of the Parliamentary Budget Officer argued that the federal government's finances should remain sustainable and concerns to the contrary are "unwarranted."
The last time there was a real focus on reining in federal spending was from 2010 to 2015, when Stephen Harper's Conservative government made a concerted effort to re-balance the books after the Great Recession.
Too much austerity, too soon
That restraint might have given the federal government a bit more room to act now, but the Harper government's cuts in federal spending actually undercut economic growth at the time, as an analysis co-authored by former Bank of Canada governor David Dodge in 2016 demonstrated.
The Conservatives could boast during the 2015 campaign that they had balanced the budget, but the price was an economy that was more sluggish than it needed to be, while income inequality and other pressures on households were allowed to linger.
Beyond Canada, the post-recession push for austerity has been linked to deepening inequality.
That doesn't mean that fiscal restraint is bad, of course — but it might remind us that balancing the budget should not been seen as an end in itself.
The Conservative government's focus on quickly eliminating the deficit lined up with Harper's desire to reduce the reach of the federal government. It also fit within a post-1990s consensus in and around federal politics that still focuses intently on whether the government's ink is red or black.
Justin Trudeau shook up that consensus, but the Trudeau years haven't proved that restraint is unnecessary, or that the voting public doesn't care about balanced budgets any longer. Some of the Trudeau government's pre-pandemic spending might look wise in hindsight (one of the larger increases in spending was for Indigenous programs) but even Liberals might struggle to justify every additional dollar they've spent.
Bigger problems, higher priorities
The post-pandemic years also might require a capacity for restraint that the Trudeau government has not yet demonstrated.
But the federal deficit isn't going to be the only thing worth worrying about in the wake of this pandemic.
COVID-19 has exposed the failings of long-term care in Canada and highlighted the importance of child care. Women and low-income earners have been hit hard by the economic shutdown and could face lasting setbacks.
Climate change will still be a profound threat. Indigenous reconciliation will still be an unfinished project.
"The choice isn't to carry a debt [or] austerity," said Lindsay Tedds, an economist at the University of Calgary. "There are way more choices than that."
The path forward might, for instance, involve both a review of federal spending and new investments. The focus, Tedds suggests, should be on "inclusive growth" — a notion that emerged in recent years in response to concerns about income and gender inequalities and existing barriers to greater economic growth.
A better, fairer approach to government spending?
"In the aftermath of the recession, and as the calls for austerity mount, the question that will, in my view, be important is how that austerity is addressed," said Miles Corak, a Canadian economist who has done influential work on income inequality.
"If we have concerns about inequality, and particularly its long-run consequences, then it will be important that spending on government services — municipal governments, education, housing and health care — are all adequately supported."
To that end, Corak said, it could be worthwhile to look at the revenue side of the equation to see whether the federal tax system is "progressive and fair."
Ideally, the threat of this virus will subside in time to give us all a moment to take stock. When that moment arrives, it might be good to remember that the measure of this country's health can't be reduced to how close the budget is to balance.