Canadian government set to prove that deficits don’t matter

…at least to a point

The era of government fiscal discipline is ending.

In the US, Senator Bob Corker and a few other deficit hawks are feuding with the President about a tax cut that will almost-surely add trillions to the deficit.

I expect they will lose, taxes will be cut and deficits will grow.

North of the border, you can see which way the wind is blowing. Canadian Prime Minister Justin Trudeau delivered a major stimulus package last year and growth has been running at a 4.5% pace in the first half of 2017.

He’s quit talking about balancing the budget and today Finance Minister Bill Morneau will announce another round of goodies in the form of the child tax credit. That’s at the same time as abandoning efforts to close a few loopholes.

The old talking points on deficits aren’t registering. Opposition politicians like to say deficits are like running up a credit card. That’s true but governments also have a money-printing machine and in the era of quantitative easing, central banks can keep interest rates on the floor.

Ultimately, voters decide on policy and fiscal discipline is losing popularity. That’s something I expect to continue for the next 10+ years.

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