"This caucus is really, really hyped up about the fact that we can be creative again," he said.

"Creative," in the mouth of a Liberal, is a word to send shivers up the spine.

So are "flexibility," "invest," and "innovative," all of which spilled out of the excitable Fontana, on the way to this concise statement of the new government's agenda: "This country's going to be rockin' for the next four years." At least, that's how it was reported: rockin'. Such is the mood these days in swingin' Ottawa.

Evidently all too many Grits have interpreted their narrow election win as a mandate to toss aside the moderate fiscal policies that got them there. A lurch to the left may win back some of the 20 seats the party lost in Atlantic Canada, but it's guaranteed to lose them seats in the rest of the country. More to the point, it would surely rock the capital markets, just as long-term interest rates in Canada are poised to dive below those in the United States.

If the economic rewards from the long campaign against the deficit are not to be consumed in a sudden burst of Liberal "creativity," it's time to start laying down some rules to guide the government's fiscal behaviour in coming years. The deficit provided some much-needed discipline against over-spending; now that it's gone, or nearly so -- a balanced budget is in reach as early as next year -- new benchmarks will be needed: explicit limits on the government's ability to tax, spend and borrow in the post-deficit era.

The government's own suggested rule -- to spend half of any surplus, leaving half to be divided between tax cuts and debt reduction -- is plainly inadequate. Assuming we are talking about the projected surplus at the start of a given fiscal year, that makes the whole equation a residual of the policies pursued in the previous year. Raise spending in year 1, and the surplus in year 2 automatically decreases -- which leaves that much less to cut from taxes or the debt.

Is there a more objective measure of the appropriate level of taxes, spending, and debt? None of the three, of course, can be set in isolation from the others. Taxes, however odious, should not be cut so low as to starve essential programs of funds. Debt reduction, however necessary, should not be pushed so far as to require unwarranted sacrifice on the part of the taxpayer. Spending on programs, however worthwhile, cannot be financed beyond a certain level without crippling the economy.

But beyond the obvious bromides that we should spend no more than we tax, and that we should tax no more than we need to spend, there is no immediately apparent "right" level for any of the three policy variables.

These are necessarily judgment calls, a matter of comparison and degree.

Nonetheless, it is possible to place current levels of spending, taxes and debt against some sort of independent yardstick.

Having cut spending to its lowest level in more than twenty years, after inflation and population growth are taken into account, the case for cutting it further would seem much less urgent. At the same time, surveying the fat that remains, it should be possible to finance any reasonable new initiatives, notably in the social sphere, by trimming in other areas. So rule one is to hold spending constant at next year's projected level, around $104-billion.

At current levels of taxes, that would mean mounting surpluses after next year, as revenues grow in line with the economy. How much of these should go to tax cuts, and how much to debt reduction? Again, there is no magic formula. But it is fair to say that taxes, while higher than they were, are not punishingly high by international standards. The debt, on the other hand, is: at 75 per cent of GDP, it is among the highest in the developed world. Nor do high taxes, whatever damage they may do, pose the sort of immediate and devastating peril to the economy that a spiralling debt represents.

So the first priority should be to reduce the debt to less alarming levels: that means setting a target for the budget surplus, and cutting taxes to match, rather than the other way around. Yes, merely balancing the budget would reduce the debt-to-GDP ratio over time -- assuming no recession. But why not make hay while the sun shines? By aiming for a modest annual surplus, moreover, we give ourselves some margin for error: even if a recession hits, we do not launch the debt back on the exponential trajectory it was on until recently.

What should be the target surplus? I suggest expressing it as a ratio of the outstanding debt, perhaps 2 per cent. That puts the emphasis on cutting the debt in the early years, while leaving room for tax cuts or spending increases later on. It's just a little early yet to start rockin.'