September 14, 2020 – Ottawa must adopt a clear fiscal anchor to guide and control expenditure choices, says the C.D. Howe Institute’s Fiscal and Tax Working Group. The group of experts in both the private sector and academia is co-chaired by John Manley, former federal minister of finance; and Janice MacKinnon, former minister of finance of Saskatchewan.
At their recent meeting, working group members discussed the importance of fiscal sustainability in ensuring government’s ability to provide public services, and the appropriate fiscal anchor to impose discipline over budgetary decisions.
If left unanchored, public debt can eventually be monetized, as the central bank buys up government bonds, leading to higher inflation and devaluing the wealth of debtholders in Canada and abroad. Should credit rating agencies and foreigners react negatively, Canada may see a rise in interest rates and payments, crowding out the ability of governments to provide public services.
Establishing a fiscal anchor now will help guide the fiscal spending needed today and in the medium to long run, and create the framework for future sustainability. Members focused primarily on two types of fiscal anchors: the debt-to-GDP ratio, and program spending targets.
The group recommends:
- Ottawa recommit to the idea of fiscal sustainability; and
- Ottawa establish a fiscal anchor now to guide fiscal policy in the medium to long term.
For more information, please contact: Jeremy Kronick, Associate Director, Research, C.D. Howe Institute; Alexander Laurin, Director of Research, C.D. Howe Institute; or David Blackwood, Communications Officer, C.D. Howe Institute, 416-873-6168 or firstname.lastname@example.org.