With Canada’s new Prime Minister Justin Trudeau pledging to run a deficit, are Anglosphere countries drifting apart?

Justin Trudeau's deficit gamble was the Liberals' turning point (Source: Getty)

Michael Martins is an economic analyst at the Institute of Directors, says Yes

National economic policies respond to global economic forces. But they are shaped by domestic political ones. In the downturn, budget deficits were needed to keep economies ticking over. But global debate about the merits of government borrowing has diverged sharply.

To the annoyance of economists, George Osborne has been successful in comparing government spending to household finances. The notion of not “living within our means” is politically toxic in Britain.

In Canada, which has had a less robust recovery from a less severe downturn, Justin Trudeau’s Liberals show that borrowing to invest can be part of a vote-winning package.

The crash in commodities prices will force Australia’s new Prime Minister Malcolm Turnbull to consider fiscal stimulus. And in the US, Hillary Clinton is pledging to borrow for infrastructure and science spending – despite support for balancing the books in both countries.

None of these nations have run a sustainable surplus since the crash, but there are very different opinions as to whether this should continue.

Andrew Goodwin is senior UK economist at Oxford Economics, says No

In the short term, it might appear that the UK and Canada are heading in different directions.

However, the chancellor’s Charter for Budget Responsibility has always looked more like a political stunt than a policy which could be sustained over the longer term. Of the past 60 fiscal years, only eight have seen a budget surplus.

And of the five budget surpluses achieved in the past 35 years, four were accompanied by what were – with the benefit of hindsight – unsustainable economic booms.

Furthermore, to achieve a permanent fiscal surplus, one or more of the other sectors of the economy – most likely households and/or companies – would have to run a corresponding deficit, a situation which may not be achievable or desirable.

Against this backdrop we think it likely that Osborne (or his successor, whichever party they might represent) will eventually come around to the idea that running small deficits – not unlike those proposed in Canada – represents the most sensible policy.

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