Are we surprised by the turn of the federal budget? The Trudeau government has spent the last few weeks slowly revealing the various measures contained in the budget, made entirely out of spending, once again.
There is no shortage of superlatives: open buffet, everything for all tastes, electoral platform, work of an “arsonist firefighter”… This budget does not inspire despite its “transformative” promises to improve the lot of young Canadians, new source of concern for the Liberals after the proverbial middle class of previous budget cycles.
The Liberals are once again demonstrating that they have no interest or plan to ever return to balanced budgets. The debt-to-GDP ratio, which will be 41.9%, Canada’s advantageous comparison with other G7 countries and Canada’s enviable credit rating (AAA) are enough to transform this issue of fiscal responsibility into an abstruse debate for economists in need of attention.
The situation is no less abnormal. On RDI, Gérald Fillion gave a shocking image. At $54 billion, debt service is now equivalent to the entire amount collected in GST in a year.
In 2024-2025, the government is proposing $5.3 billion in new spending, largely in areas of provincial jurisdiction. Expenditures (538 billion) are up 8% while revenues (498 billion) are up 7%. The government will still end the 2023-2024 financial year with a smaller deficit than expected, at 40 billion instead of the 46.8 billion estimated by the Parliamentary Budget Officer. We console ourselves as best we can.
The following financial year is expected to generate a deficit of 38.9 billion (1.3% of GDP), and the other four will also be written in red ink. If the budgetary assumptions are confirmed, Canada will therefore add 156 billion to its debt over the next five budgetary years. Once again, everything is relative to the weight of the debt and the deficit in relation to GDP, the Liberals and their coalition partner, the NDP, will say.
In the absence of a strategy to regain control over public finances, it is becoming increasingly difficult to accept these explanations with peace of mind. Young people, to whom the government is reaching out through its measures for access to housing and property, perhaps form today’s electoral base. They will be responsible for paying the bill tomorrow if the economic situation deteriorates.
The promises of access to housing made to them will also come up against a reality test. The Liberals promise to add 3.87 million housing units to the country by 2031. CMHC has been insisting for years that housing starts do not meet needs and that prices will continue to explode. How will this centralizing and sclerotic government be in a better position than the provinces to curb the housing shortage?
Thus, the leader of the Bloc Québécois, Yves-François Blanchet, is right when he reduces the budget to “a lifeline” that the Liberals and New Democrats have created in the hope of getting back on the path to victory. The leader of the Progressive Conservative Party (PCC), Pierre Poilievre, was even more scathing by accusing Prime Minister Justin Trudeau of behaving like a “pyromaniac firefighter” in the management of public finances. Notice he doesn’t yet say where he will cut if elected…
Once the chorus of protests has exhausted itself, we will still have to concede some virtues to this open buffet. Desjardins Group chief economist Jimmy Jean noted that the budget respects fiscal anchors and that Canada’s AAA credit rating is not at risk.
The government has also achieved a feat by increasing the tax base without increasing the taxes of ordinary people. The government plans to recover 19.4 billion in new revenue with the increase in tax on capital gains for individuals and corporations. The measure would affect around 40,000 of the wealthiest taxpayers, it is said. Let’s wait to see how the measure will affect households who will be very surprised to find themselves in “the 1%” simply because their property has appreciated over its useful life. The measure also risks curbing the appetite of businesses for investment and modernization of equipment while Canada is seriously lagging behind in productivity compared to the United States.
The next few days will be full of debates and accusations in the Commons, but let us not be fooled by the result. The alliance between the Liberals and the New Democrats will be enough to get this budget approved and launch the next phase of the political cycle which will lead us to the election. Spending so much, one wonders what will be left to promise for the Liberals during the next campaign, other than illusions or disillusioning tomorrows.