Now that Mr. Flaherty is about to deliver his ninth budget (if you include both 2011 budgets), I thought it was prudent to take a look back at the accuracy of his budgets past, particularly his first, way back when Canada had experienced a string of budget surpluses.
Mr. Flaherty's first budget was released way back on May 2nd, 2006 for fiscal 2006 when the Great Recession was a concept not yet germinated. The Canadian government, thanks to years of economic growth and the steady hand of Paul Martin, was coming off a series of budget surpluses, estimated at $13.4 billion in 2005 - 2006 and projected to be $15.0 billion in 2006 - 2007 and $16.4 billion in 2007 - 2008. Nominal GDP growth was 5.1 percent in 2005 and was projected at a whopping 6.0 percent in 2006, slowing to "only" 4.6 percent in 2007. Ah, those were the days, weren't they? Interestingly, the economy was expected to grow at a very healthy rate even though short-term interest rates on three month treasury bills were projected to hit 4.1 percent in 2007, up from 2.7 percent in 2005. Doesn't it seem odd that now, with interest rates at near zero levels, the economy cannot muster up growth rates that are better than lukewarm at best?
Here is a graph showing Mr. Flaherty's 2006 projections for Canada's debt-to-GDP ratio:
Mr. Flaherty proposed debt reductions (i.e. paying down the federal debt) of $3 billion per year between 2006 and fiscal 2014 - 2015 and, with this in mind, the Harper government projected that the debt-to-GDP ratio would be reduced to 25 percent by 2013 - 2014, down from 38.3 percent in fiscal 2004 - 2005, thanks to those nasty Liberals.
Now, let's look at Mr. Flaherty's most recent budget, delivered on March 29, 2012. In this budget, Economic Action Plan Part Umpteen, Mr. Flaherty now proposed that the deficit would continue to decline to $1.3 billion in fiscal 2014 - 2015. The federal debt was projected to decline to 28.5 percent of GDP in 2016 - 2017, still well above the 25 percent mark proposed for fiscal 2013 - 2014.
Here is a graph showing what really happened to Canada's federal debt-to-GDP ratio over the intervening years, keeping in mind that this is the level of net debt or total liabilities net of financial assets of all levels of government:
Here is a bar graph showing the past and projected budgetary balances from fiscal 2011 - 2012 to 2016 - 2017:
So much for paying off the debt $3 billion at a time! Keep in mind that in 2008 - 2009, the debt was $516.3 billion and rose to $641.8 billion in 2011 - 2012, an increase of 24.3 percent in four years as shown on this graph:
I did stumble on this interesting graphic from Mr. Flaherty's first budget. It shows the average length of Canadian economic expansions since the end of World War II:
As noted on the graph, since 1947, the average length of time that the Canadian economy has expanded after two consecutive quarters of contraction is 31 quarters or just under eight years. If you exclude the lengthy expansions in the period between 1958 and 1980, an economic anomaly thanks to baby boomers and cheap energy, the average length of economic expansions looks far different. In fact, the average length of time that the Canadian economy expands after a recession drops to just over 21 quarters or just over five years. According to the National Bureau of Economic Research, the latest recession ended in June 2009, nearly four years ago. If history repeats itself, we could well have a recession in the next year and a half, an issue that will once again throw all of Mr. Flaherty's fiscal dreams into the round bin.