Since coming to power in 2015, Justin Trudeau has cast his budgetary anchor in quicksand. To stop the drift, it is time for the federal government to adopt a rigorous framework, like the one that has allowed Quebec to consolidate its public finances in a remarkable way for a quarter of a century.
The economic statement tabled Tuesday by Finance Minister Chrystia Freeland proves that the Liberals cannot continue to spend happily, piling deficit upon deficit, without ending up paying the price.
This price is measured in interest, while the rise in rates increases debt service. And not just a little. Over three years, interest costs will completely double to reach 52.4 billion in 2024-2025 and then reach 60.7 billion in 2028-2029.
All that money going to pay off the credit card deprives us of important room for maneuver and prevents us from getting our heads above water. Indeed, it is mainly because of the increase in interest costs that the cumulative deficits over the next five years will be 36 billion higher than what was forecast barely six months ago.
In short, the more we go into debt, the more it costs in interest… which widens the deficit. The deeper we widen the deficit, the more we inflate the debt… which costs more in interest. It’s an unhealthy spiral.
We are not questioning the massive interventions during the pandemic which caused the debt to skyrocket.
But beyond the pandemic megabill, the Liberals have considerably increased their program spending, which went from $315 billion in 2018-2019 to $439 billion in 2022-2023. This is a surprising growth rate of almost 9% per year.
Let us repeat: these are not temporary expenses linked to COVID-19, but rather recurring expenses attributable to the increase in the number of civil servants or the addition of new programs such as daycare or dental insurance.
From now on, the Minister of Finance is walking on eggshells. It is caught between the need to contain spending and the pressure to help people cope with the housing crisis.
She got out of it by announcing measures that help citizens, while having the merit of not costing the public treasury too much. Let’s think, among other things, about the rules to reduce short-term Airbnb-type rentals.
In her statement, Chrystia Freeland also promised to reduce the deficit to less than 1% of the size of the economy (GDP) from 2026-2027. The challenge is great, because all kinds of other expenses will loom: commitment to increase military spending, subsidies for the battery sector higher than expected, etc.
So, will this new target set by the Minister of Finance be just another wishful thinking?
Remember when the liberals took power…
Stephen Harper had just adopted a law on balanced budgets, after having himself incurred deficits in a difficult economic context. However, this law quickly went into the trash. Justin Trudeau instead called for “modest deficits” to stimulate the economy, before returning to balance in 2019.
This never happened. Neither in 2019 nor thereafter. Under Liberal rule, balanced budgets are like a mirage that disappears every time we think we’re getting closer.
After the pandemic, the Liberals changed their budgetary target, now aiming to reduce the debt rate, that is to say the debt-to-GDP ratio. However, this ratio will increase from 41.7% to 42.4% this year, then to 42.7% the following year, before going back down.
That’s better than the high of 48% reached during the worst of COVID-19, but a far cry from the pre-pandemic level of 31%.
When we compare ourselves, we console ourselves, tempers Minister Freeland, emphasizing the fact that Canada has the best debt rate of all the G7 countries, which is true.
Except that if interest rates remain higher for longer – that’s what the US Federal Reserve said on Tuesday – our debt could become very heavy. And the debt-GDP ratio could seriously start to rise again.
Constantly spending on the credit card is not fair to future generations who will have to foot the bill.
For the future, it is therefore essential to avoid launching new programs, such as drug insurance that the NDP is calling for, without providing new sources of revenue to pay for these recurring expenses.
Furthermore, it is time to set clear budgetary targets in law, as Quebec has done for a long time. All OECD countries have these kinds of budgetary anchors. All except South Korea, Turkey… and Canada.
Ottawa must drop anchor, for real.
The position of The Press
While interest rates are increasing debt service, Ottawa must refrain from launching new programs without providing funding, but also provide itself with clear budgetary targets.