Former Governor of the Bank of Canada David Dodge.Sean Kilpatrick/ Globe and Mail
David Dodge is taking his message on Canada's deficits to a wider audience, writing an opinion piece for Bloomberg News.
Bloomberg's core readership of international traders and investors might be a little surprised by the former Bank of Canada governor's warning that Canada's fiscal advantage relative other rich countries might not be as strong as it looks.
To be sure, Canada is no Greece. But as Mr. Dodge writes Tuesday, that doesn't mean restoring budget surpluses in order to resume lowering debt will be easy.
The crux of Mr. Dodge's argument, which he has voiced often over the past year at home, is that global economic conditions will impede the federal and provincial governments' attempts to balance their budgets. Unlike the early 1990's, when former Finance Minister Paul Martin and his provincial counterparts got a lift from booming global demand, there will be no pop in corporate and income tax revenue this time. The U.S. economy will resume growth, but slower than in the past. Interest rates will be higher. Households are carrying bigger debts than they were a couple of decades ago.
"While Canada's deficits are considerably smaller now than they were at their peaks in 1992, when the country was emerging from another recession, the challenge of putting public finances on a solid footing is, in many ways, more daunting today," Mr. Dodge wrote Tuesday.
Mr. Dodge's assessment of Canada's prospects is the same for all countries and explains why the Group of 20 struggles to muster much enthusiasm for the recovery. That's because the answers to the current problems facing the world economy will likely curb growth. Because governments need revenue, he says they must accept reality and raise taxes.