In honour of the 2015 Federal Budget and the balancing of the budget, why not a retrospective on Canadian federal government deficits since 1867. In the period from 1867 to 2014, the Federal government has run a deficit in 108 out of 148 years or 73 percent of the time. In nominal terms, the federal budget balance has ranged from a deficit of 55.598 billion dollars in 2009 to a surplus of 19.891 billion dollars in 2000. Perhaps a better indicator of the size of the budget balances over time would be in relation to national output – that is a deficit to GNP or GDP ratio.
The accompanying figure plots an estimate of the federal deficit to national output ratio from 1870 to 2014 using budget data from Historical Statistics of Canada and the Federal Fiscal Reference Tables and GNP data from Mac Urquhart and Alan Green's work (GNP for 1870 to 1985) and then GDP from Statistics Canada afterwards. In the years from 1870 to 2014, the average deficit to GNP/GDP ratio has ranged from -23.1 percent (in 1943) to +5.0 percent (in 1947). During the most recent spate of continuous surpluses from 1997 to 2008, the deficit to GDP ratio ranged from 0.1 percent (in 2004) to 1.8 percent (in 2000). It would appear that balanced budgets or surpluses are the exception rather than the rule. How a federal balanced budget law proposes to deal with this empirical weight of history is an interesting question. Enjoy.
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Worthwhile Canadian Initiative 
Livio: “How a federal balanced budget law proposes to deal with this empirical weight of history is an interesting question.”
Yep. If NGDP is growing over time (at say 2% inflation + 3% real = 5%), then you need to run a deficit equal to 5% of debt/NGDP to keep the debt/NGDP ratio constant over time.
Just doing my own post on this balanced budget law. The two posts should complement each other.
Nick,
You mean 5% of debt, not debt/gdp. Apart from that, exactly what I was going to say. This is why the big deficits in the 70s were harmless for debt/gdp. Good post Livio.
K: Yep. But the deficit/NGDP ratio would be 5% of the debt/NGDP ratio.
Suppose the govt. runs a balanced budget before interest payments (i.e. the “primary” surplus is zero.)
The debt then increases at rate r = the interest rate on the debt.
GDP grows at rate g.
So our debt to GDP falls even if
(a) we run a (small) deficit, and
(b) r is not too much above g.
Anyone feel up to giving us a time-series of r-g for Canada? (both real or both nominal, as you like)
There’s a lovely analysis for the US by Ball, Elmandorf and Mankiw, but I’m not familiar with the Canadian data.