Policy Forum: Structural Deficits and Long-Term Fiscal Consequences for the Federal Government — Some Observations and Advice

Abstract

This article examines the changing nature and size of public deficits in Canada. In this context, the authors draw a distinction between short-term "cyclical deficits" and long-term "structural deficits." They argue that beyond the issue of fiscal sustainability, judgments concerning the appropriateness of federal deficits should take into consideration the overall level of public and private debt in the economy. The authors then set out several proposals to improve fiscal risk analysis and deficit management at the federal level. They conclude that while the merits of a given deficit might be judged by whether the excess spending is used to fund current consumption or to invest in future economic growth, sustained structural deficits with no plan to return to balance before 2040, as projected under current federal fiscal policy, are inappropriate.

Keywords: deficits, fiscal planning, debt, risk, risk management, budgeting