The hidden cost of ‘balanced’ budgets

Public spending – not cutting – is the best way to grow our economy.Lately, provincial politicians have been talking up the need for balance. They say we need to ‘streamline’ services and ensure ‘sustainable’ finances for the future. But they don’t talk about weighing the costs and benefits of cutting services compared to increasing borrowing or raising revenue through taxes. And they definitely don’t mention how tax cuts make “balance” even harder to achieve.

Fiscal balance is only one part of the overall balance. We need to ask who pays the price when governments balance budgets by shifting costs onto people who rely on public services, workers who deliver public services, and the broader community.

There’s an assumption that balanced budgets are fiscally responsible. This is simply not true. It may sound like common sense that a government’s spending should not exceed its revenues. But that’s a short-sighted, narrow approach. Government budgeting needs to be guided by long-term thinking that weighs many factors. For example, it makes sense for a government to run a deficit to invest in public child care that makes life more affordable for families and pays for itself as more women enter the workforce.

Cuts hurt communities and economy

Short-term decisions to balance budgets can mean higher long-term costs for future governments or a less prosperous economy. Failing to maintain infrastructure like public transit is a good example. It leaves future governments with a bigger maintenance bill and makes it harder for people to engage in productive economic activity like getting to and from work.

In other cases, the impact is more immediate. Cuts in one area can increase costs for other government departments or levels of government. Or the cost can come directly out of people’s pockets. An example is cuts to public health and preventative medicine. This will lead to more hospitalizations. Cuts to staff and funding for hospitals, long-term care, and child care create more direct costs for families, as they struggle to fill in the gaps for their loved ones.

Public sector cuts have a ripple effect through our communities. The quality and availability of services decline, so people may pay more out of pocket for services they need. Laid-off workers have less money to spend, and provincial wage freezes leave public sector workers with stagnant wages. All of this means less spending in the local economy, leaving local businesses with less money to invest back in the community. This impact can be measured using tables from Statistics Canada that reveal how spending in specific sectors flows through the whole economy. CUPE Ontario used this data to estimate that the cuts to government spending in the 2019 provincial budget would mean the loss of more than 50,000 jobs in Ontario.

A truly “balanced” budget needs to take more into account than the short-term fiscal bottom line. Governments must weigh many factors to ensure budgets are truly balanced. Currently the cost of public borrowing is historically low. There is solid evidence that government spending in many areas has long term social, environmental, and economic benefits that far outweigh the cost of borrowing.

The real bottom line? It is not just socially irresponsible to cut public services, it’s fiscally irresponsible as well.


Source: CUPE National