OTTAWA - Finance Minister Jim Flaherty faces a dilemma in preparing for the March 4 budget -- to what extent will it be a political or economic document.
So far, Flaherty has maintained he can balance the budget in the not too distant future without raising taxes, without cutting transfers to provinces and individuals, and without deep, painful cuts to government programs.
In doing so, Flaherty would count on steady economic growth to increase government revenues to such an extent that five, six, seven or eight years down the road -- and poof, there goes the deficit.
The approach has political appeal because it tells voters they don't have to give up anything.
But several former policy-makers who were involved the last time Ottawa eliminated a stubborn fiscal deficit say it can't be done without pain and higher taxes.
And they say the minister would be doing Canadians a service by coming clean.
Former Liberal finance minister John Manley, former deputy finance minister Scott Clark and Parliamentary budget watchdog Kevin Page, also a former Finance official, told a panel discussion Wednesday that the deficit, now a small problem, could become a big one if plans aren't made to tackle it soon.
And they argue, while some estimates of a chronic $20-billion deficit five years down the road doesn't sound like a big problem, it's unlikely the government can grow the economy enough to erase it.
"That's not going to happen," said Clark. "No advanced country in the world has ever grown itself out of deficit. I've been there, I've seen that movie, seen the sequel."
Cutting spending won't work either, he added, because once transfers and protected programs are excluded from the $200-billion plus discretionary budget, the government has only about $50 billion it can reasonably target. Finding significant savings from such a small pot will be difficult, he said, if not impossible.
Dimitri Soudas, a spokesman for Prime Minister Stephen Harper, dismissed Clark's call for a tax increase, charging he was a Liberal adviser.
Clark, along with others, recently spoke to the Liberal caucus on the government's fiscal situation.
The government's approach got some support from CIBC chief economist Avery Shenfeld, who suggested that a $20-billion chronic deficit is manageable.
That was also the message from the handful of economists who met with Flaherty on Tuesday. They said it was possible to eliminate the shortfall in five-to-eight years without taking draconian measures.
But those who have been there cautioned the government is taking a big risk by not building in a cushion in case the economy doesn't grow steadily in the next decade, or even takes a backward step.
Manley, who was industry minister when Paul Martin turned two decades of chronic deficits into a surplus, said that what Flaherty faces is more difficult than the numbers appear and possibly more difficult than what his Liberal government encountered.
One difference, he said, is that interest rates will be rising as the government seeks to tackle the deficit, whereas in the 1990s, rates were falling.
A much bigger difference is that whereas the labour force was growing in the 1990s, meaning more taxpayers, the Baby Boom generation is now approaching retirement. That means fewer taxpayers, and a larger portion of the population collecting pensions, old age benefits and using up costly health services.
For that reason, Ottawa will face relatively falling revenues and rising expenses just as it sets its sight on eliminating the deficit.
The problem will be even greater for provinces, especially Ontario and Quebec, given that untouchables like health care and education are eating up about 70 per cent of their revenues, he said.
"In some ways this is more difficult time than it was in the early 1990s, even though (the deficit is not as large)," said Manley, who is now president of the Canadian Council of Chief Executives.
He said Flaherty should have a "realistic conversation" with Canadians about what is necessary and set a target of keeping spending growth close to the pace the economy grows.
Page said the demographic changes will be such that even if Ottawa sees better than expected growth with no setbacks, the deficit will return once the economy returns to the new, lower-growth normal.
Interestingly, none had an argument with any of the government's actions to date, particularly in introducing a two-year $46-billion stimulus package.
And they stressed they agree with Flaherty's short-term plan to implement the second year of the stimulus program, and to not raise taxes or cut program spending. The economy is too week to withstand such a shock, they said.
But where they diverge is on how the government should proceed after 2011.
Page said a reckoning is coming for the government, because even under the best case scenario, it is adding at least $170 billion to the national debt.
