Is history repeating itself? This is the question asked by many observers of the Canadian political scene — at least, those with the slightest interest in history — after the announcement this week of an agreement of support and confidence between Prime Minister Justin Trudeau’s Liberals and Jagmeet Singh’s New Democrats.
Mr. Singh’s troops have pledged to support Mr. Trudeau’s minority government until 2025 in exchange for the achievement of certain priorities dear to Canadian progressives, including the establishment of a pan-Canadian dental program and the implementation of a universal drug insurance plan.
The LPC-NDP Pact of 1972
The deal recalls the pact made in 1972 between Pierre Elliott Trudeau and then New Democrat leader David Lewis. Thanks to this informal agreement, the minority Liberal government of Trudeau Sr. had been able to count on the support of the 31 NDP members in the House of Commons in order to avoid a hasty election. But the good risk of Mr. Lewis had turned against him in the following election, in 1974. The NDP had then lost more than half of its seats, and the Liberals of Mr. Trudeau had regained their lost majority in 1972. Some wonder if Mr. Singh is not making the same mistake as his predecessor.
For public finance historians, the 1972 LPC-NDP alliance also marked the beginning of structural deficits in Ottawa, which severely handicapped subsequent federal governments. The oil shock of 1973 and the resulting runaway inflation contributed to a rise in interest rates. Mr. Trudeau’s Liberals had nevertheless continued to spend as if nothing had happened. Public debt of course exploded, and interest payments on that debt rose from 11% of spending in 1975 to 26% in 1990.
It was not until 1995, when the Canadian dollar was in free fall and foreign investors shunned Canadian bonds, that Jean Chrétien’s Liberals took the bull by the horns, with the consequences that we know . The drastic cuts in public spending that followed, especially in transfers to the provinces, helped put public finances back on track. But our health systems still bear the scars.
The price for Canadian taxpayers
The agreement between Mr. Trudeau and Mr. Singh does not mention the deficit. “We have agreed to work together during this Parliament to put the needs of Canadians first,” reads the document that summarizes the main axes of this collaboration. It does not provide any figures showing the costs of this beautiful alliance for Canadian taxpayers. But they are likely to be considerable. After recording record deficits during the pandemic, Mr. Trudeau’s Liberals have now found a new excuse to rain billions on the country.
However, the war in Ukraine is forcing Canada to also revise its defense budget upwards. At about 1.4% of gross domestic product, it remains well below the 2% that the North Atlantic Treaty Organization requires of its 30 member countries. The neglect of successive federal governments regarding our military capabilities has gotten us into trouble. The Canadian Armed Forces (CAF) remain so ill-equipped and their stockpiles of weapons so diminished that Canada is struggling to meet Ukrainian demand for weapons.
The CAF desperately needs new fighter jets and new frigates. Our NATO partners, who are also increasing their military spending to deal with the Russian threat, will no longer pass the towel on member countries which, like Canada, systematically fail in their responsibilities.
The Minister of Foreign Affairs, Mélanie Joly, seems to take note of this. “Times have changed, the world has changed since February 24,” she said this week, referring to the start of the Russian invasion of Ukraine. Germany has decided to take a very important decision by increasing its military spending. And we take stock of that. The Minister of National Defense, Anita Anand, said she was preparing “aggressive options” concerning an increase in the military budget which she intends to submit to the Council of Ministers soon.
Will the Liberal-New Democrat alliance pay the price?
No worries about deficits
At his Tuesday press conference, Singh said he wouldn’t oppose a defense spending hike as long as it didn’t hamper new spending on social programs. “No budgetary decision should interfere with our commitment to providing the dental care people need, the care they need from a doctor or in a hospital. However, the new social programs demanded by the New Democrats in exchange for their support of the Liberals will cost several billion dollars, and this, on a recurring basis. Added to these new expenditures will be additional billions for national defence.
We already knew that Justin Trudeau, like his father, did not care about deficits. Her alliance with Mr. Singh confirms this.