Federal Fiscal Sustainability

Federal Fiscal Sustainability
Posted on March 2, 2018 | Larry Kazdan | Written on January 31, 2018
Letter type:


Hill Times

Re:  Federal fiscal policies ‘sustainable’ over long term, says new PBO report, MARCO VIGLIOTTI, Jan. 23, 2018

Growing poverty and inequality are not sustainable. Uncontrolled climate change and environmental degradation are not sustainable. However, the federal debt and deficits are always financially sustainable because our government owns a central bank, issues a sovereign currency, and can never run out of Canadian dollars.

Through targeted programs that put the majority of our 1.1 million unemployed back to work, the federal government could use its fiscal clout to create a more equitable, prosperous and green society.  But just as generals typically fight the last war, economists advocate restrained fiscal and monetary policies based on a gold standard that no longer exists. While our pundits, leaders and bureaucrats pour over their maps, Canadians are left to struggle with real threatening events unfolding on the battlefield.



1 Alan Greenspan, former U.S. Federal Reserve Chairman, 1997


"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."

2. Fiat money is a tax credit not backed by any tangible asset.


"In 1971 the Nixon administration abandoned the gold standard and adopted a fiat monetary system, substantially altering what looked like the same currency. Under a fiat monetary system, money is an accepted medium of exchange only because the government requires it for tax payments. Government fiat money necessarily means that federal spending need not be based on revenue. The federal government has no more money at its disposal when the federal budget is in surplus, than when the budget is in deficit. Total federal expense is whatever the federal government chooses it to be. There is no inherent financial limit. The amount of federal spending, taxing and borrowing influence inflation, interest rates, capital formation, and other real economic phenomena, but the amount of money available to the federal government is independent of tax revenues and independent of federal debt."


3. William Mitchell is Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), University of Newcastle, NSW, Australia


"There is no rational economic reason, for a currency-issuing government, to think that a balanced fiscal position is responsible, desirable or even possible.

The fiscal balance should never be a policy target – whether it be an immediate aim or some stretched goal into the future.

The relevant goals should be about the outcomes that make societies prosperous and inclusive – goods schools and hospitals, good public transport, full employment, strong income support safety nets for those who cannot work, socially responsible minimum wages etc.


Forget the deficit. Forget the fiscal balance. Focus on what matters – employment, equity, environmental sustainability. And as we would soon see – the fiscal balance will just be whatever it is – a relatively uninteresting and irrelevant statistical artifact."




Modern Monetary Theory in Canada


About The Author

Larry Kazdan's picture

Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More