Macroeconomists like to divide an actual deficit into two components: a cyclical deficit and a structural deficit. It reflects their distinction between automatic stabilisers and discretionary fiscal policy. I don't think that distinction is as clear and useful as macroeconomists think it is. And in ordinary language a "structural" deficit is one that is hard to get rid of. That's something quite different.
Take a simple example that macroeconomists might use to explain the distinction between a cyclical and structural deficit. The government sets government spending 'G', and a tax rate 't', on income 'Y'. The actual deficit is G-tY (forget interest payments on the debt, for now). But if we are in a recession, so Y is lower than normal, the actual deficit will be larger than if Y were at some normal level, Y*, because tax revenues will be lower than normal. The "structural" deficit is G-tY*, the cyclical deficit is t(Y*-Y), and if we add the two together we get the actual deficit.
In that simple example there seems to be an equally simple distinction between a cyclical and a structural deficit. But complicate that simple example, and the simple distinction disappears.
Suppose we go into a recession, and G increases from G* to G'. The actual deficit is then G'-tY. What is the "structural" deficit? Is it G'-tY*, or G*-tY*?
When it comes to tax revenue, we make a distinction between a fall in tax revenue that is an "automatic" result of a recession, due to falling income, and "discretionary" changes that result from a government decision to cut tax rates. We can presumably apply the same "automatic" vs "discretionary" changes in government spending and transfer payments too. A deficit that results from the operation of automatic stabilisers is "cyclical"; a deficit that results from the government's discretionary actions is "structural". So if the change from G* to G' was automatic, the structural deficit is G*-tY*, and if the change from G* to G' was discretionary, the structural deficit is G'-tY*.
But that's nonsense. In principle we could imagine two governments that do exactly the same thing, except that the first likes to specify in advance what will happen to taxes and spending in a recession, while the second likes to make those decisions when the time comes. (The first is more organised; the second likes to give the appearance of "doing something".) The first government's deficit would be all "automatic", and hence "cyclical"; the second government's deficit would be partly "discretionary", and hence "structural". Yet in both cases the deficit goes away when the recession ends.
Take another example. One government likes to have high marginal tax rates, but leaves those tax rates constant in boom or recession. A second government likes to have low marginal tax rates, but raise them in booms and cut them in recessions. In both cases the economy-wide average tax rate is the same, and varies in exactly the same way in boom and recession. In a recession, the first government's deficit is purely "cyclical", the second government's deficit is partly "structural". But again, in both cases the deficit goes away when the recession ends. The microeconomic policies of the two governments differ greatly; but in terms of macroeconomic fiscal policy they are the same.
Take a third example. Two governments temporarily increase spending (or cut taxes) in a recession by exactly the same amount. The first does it by passing a law that will expire in one year, unless renewed; the second does it by passing a law and then repealing it when the recession ends.
The distinction between automatic and discretionary fiscal policy, and hence between cyclical and structural deficits, is a political distinction, not an economic one. Macroeconomists agree that it's generally OK to run a temporary deficit in a recession. If a deficit of size D is appropriate for a recession of size R, why should we be more worried about the deficit if it took an Act of Parliament to get a deficit of size D?
What about interest on the debt? If we include it, the deficit becomes G+iB-tY. If we have a recession, and that recession causes a deficit, the debt will be higher when the recession ends, and so the future deficit will be higher even when G and tY return to normal. So even if you could make a meaningful distinction between "automatic" and "discretionary" changes in spending and revenues, and hence between "cyclical" and "structural" components of the current deficit, a current cyclical deficit will cause an increased future structural deficit.
The macroeconomists' distinction between "cyclical" and "structural" deficits doesn't make macroeconomic sense.
Here's the Globe and Mail's definition:
"Canada faces a structural deficit – a situation in which spending is permanently higher, and in this case growing faster, than revenues. It will persist even after the country escapes the recession, and is slated to hit 1 per cent of GDP, and growing, by 2013-14."
That's not a statement about the composition of today's deficit between the results automatic and discretionary changes in spending and revenues, it's a forecast about the future. It's a conditional forecast, of course. The Globe is saying that there will be a permanent deficit in future, unless....
"Mr. Page's report challenges Parliament and all Canadians to think about the sacrifices they are prepared to make in the name of deficit reduction."
Unless we make sacrifices. If something cannot go on forever, then it won't. What the Globe really means by saying the deficit is "structural" is that Canadians, and Canadian politicians, are overly optimistic about future taxes and government spending. It's a warning that our expectations of what future governments will do are inconsistent with the long run government budget constraint. I think that's actually a more useful definition of a "structural" deficit. The benchmark is not current tax rates, or current spending levels. It's current expectations about future tax and spending policies.
P.S. Of course, warning people in the middle of a recession that their expectations are overly optimistic isn't exactly helpful in ending the recession. But I'm going to leave that dilemma for now.