Deficits can force governments to raise taxes or to borrow money and increase the size of the public debt.
High taxes are a disincentive to economic growth.
The cost of making interest and debt payments can erode the ability of governments to maintain essential public services. In the 1990s, all governments in Canada strove to reduce their persistently high deficits. For 2000-01, eight provincial governments are now forecasting a balanced budget or surplus. Federal surpluses are forecast for the next five years. In Newfoundland and Labrador, we have reduced our deficits significantly.