There was great irony recently when Finance Minister Chrystia Freeland touted her government’s “fiscal restraint” on the same day taxpayers found out the governor-general and her entourage had racked up an $80,000 bill on in-flight catering.
“I know that my fiscal prudence surprised many,” Freeland told her Toronto audience last month, referring to her April budget. “This fiscal restraint was very intentional.” Actually, it’s more a case of Canadians being mystified that the minister believes she has exercised restraint. There’s nothing at all prudent about the government’s budgeting.
Starting out as prime minister, Justin Trudeau initially said he would run a few “modest” deficits before returning to budget balance in 2019. He was set to miss that balanced budget by $20 billion even before the pandemic. Now the only mention of a balanced budget from the government is from the Parliamentary Budget Officer, whose data shows the feds won’t be back into black ink until 2070. With the Liberal Party promising to spend another $78 billion in the last election, taxpayers have even less reason to believe budget balance will be reached sooner.
True, this year’s $53-billion deficit is lower than last year’s $114-billion deficit and the $328-billion deficit in 2020. But bragging about a $53-billion deficit is like bragging about being the most sober person in the drunk tank. It’s especially ludicrous when that slightly less elephantine deficit occurs even as an unexpected $30 billion in revenue falls into your lap.
With the debt passing $1.2 trillion this year, the Trudeau government will have nearly doubled it since taking office. The federal debt-to-GDP ratio is 45 per cent, 15 percentage points above pre-pandemic levels. Once you add Canada’s total government indebtedness, the ratio surpasses 100 per cent, which “is among the worst in the industrialized world,” according to the Fraser Institute. In fact, 23 industrialized countries covered by the International Monetary Fund have lower levels of total government debt as a share of their economy. Only seven have higher.
The problem is runaway spending. Ottawa plans to spend $452 billion this year. That’s nearly $90 billion above pre-pandemic spending, which was already at all-time highs even after adjusting for population and inflation. That means the federal government spent more money before the pandemic than in any year during the Second World War. And now it intends to spend $90 billion more.
Federal interest charges on the national debt will cost $27 billion this year, which is more than the Alberta government spends on health care in a year. The PBO expects interest charges to exceed $40 billion per year by 2025, which is more than double what they were at the onset of the pandemic.
Minister Freeland clings to S&P’s triple-A credit rating as proof of her prudence, but does she really want to rest on laurels earned by previous governments that actually did slay deficits? And it’s funny how she ignores the 2020 credit downgrade from Fitch that was due to the “deterioration of Canada’s public finances.”
Ottawa’s profligacy is making life in Canada less affordable.
Politicians are already flipping over couch cushions looking for more money to pay down their debts. Despite promising not to tax their way out of the deficit, the government’s pandemic budgets contain a raft of tax hikes: a luxury goods tax, a tax on foreigners who own vacant homes, an anti-flipping tax, higher taxes on banks and insurance companies, and more. The federal carbon tax, together with booze and payroll taxes, have been recently increased. The prime minister’s office also requested analysis of a potential wealth tax, while staff met twice with a group that received tax dollars to push for new home taxes.
Then there’s the inflation tax. The Bank of Canada’s total assets increased by more than $300 billion during the pandemic largely through purchases of federal government debt. It would have been hard for the government to have financed its extraordinary deficits without the central bank reducing the value of Canadians’ money through such aggressive bond purchasing.
Fiscal restraint requires more than just repeating the phrase a couple times during a speech. To exercise true restraint, Minister Freeland needs to rein in the overspending and set a timeline and plan to balance the budget.
Franco Terrazzano is federal director of the Canadian Taxpayers Federation.