Final answer:
Annually balanced budgets in Canada would impair economic stabilizers, potentially worsening economic downturns. Flexibility in fiscal policy is crucial for responding to crises and maintaining stable growth. A balanced budget mandate would risk economic inflexibility, thereby increasing the severity of economic fluctuations.
Step-by-step explanation:
Implementing legislation in Canada that requires annually balanced government budgets would conflict with the function of automatic stabilizers in the economy. During economic recessions, it's normal to have larger budget deficits, allowing for additional government spending to stimulate the economy. Conversely, during economic booms, surpluses typically shrink the deficit or grow the surplus. Such flexibility in fiscal policy helps cushion the fluctuations in the economy, preventing severe downturns. A balanced budget amendment, by contrast, would force the government to either cut spending or raise taxes during a recession to balance the budget, likely worsening the recession.
Moreover, such a constraint on fiscal policy would eliminate the possibility of running even small, temporary deficits to respond to unforeseen situations such as wars or economic downturns. The economic consensus is that while persistent, large deficits are problematic, the ability to accommodate temporary deficits is crucial for maintaining steady economic growth and responding to crises.
Lastly, persistent large deficits can lead to other negative outcomes like inflationary pressures, crowding out of private investment, and risky dependence on foreign investment. However, the need for a flexible fiscal policy is paramount in managing these risks effectively, especially considering potential demands for increased government services as the population ages.