“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Well, no, it doesn’t work that way: not for governments at any rate. The news that the federal government will soon return to deficit, something the Conservatives stoutly denied all through the recent election campaign—gosh, what a surprise—is hardly cheering. But it does not quite spell the difference between happiness and misery.
The fate of the nation does not hang upon a swing of a shilling this way or that, or even a few billions. We do not all turn into pumpkins the moment revenues fall short of expenses. The fiscal calamity that befell this country through the ’80s and much of the ’90s did not come upon us because we ran a deficit, but because we ran 27 of them. In a row.
The gloomiest current forecast puts the deficit for the next fiscal year—most experts predict we will remain in the black this year—at $10 billion, with smaller shortfalls expected from there on. That sounds like a big number, but relative to the economy, it’s still just 0.6 per cent of GDP. The deficit was never less than one per cent of GDP in all of those 27 lost years. For most of that time it was greater than three per cent; some years it was as high as eight per cent.
And, unlike in those dark days, the government remains in operating surplus. We’re still taking in roughly $6 in revenue for every $5 in program spending. It’s the costs of paying interest on the debt—on all those past deficits—that will drag us back into the red. But only temporarily: the fiscal momentum implied by those operating surpluses is hard to overcome.
All the same, the road to perdition starts with a single step. The reason we should want to avoid falling back into deficit is not on account of the ill effects of a single year in the red, or even two, but for fear that it will prove habit-forming: like a recovering alcoholic, we should be wary of taking even a single sip of the deficit punch, or risk waking up 27 years later with a hangover the size of the national debt. It may be an irrational taboo, but as irrational taboos go, there’s much to be said for it.
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