Tegan Hill and Jake Fuss are economists with the Fraser Institute.
Candidates ignore federal budget on campaign trail
Unless you’ve been living underground, you’ve already heard plenty from party leaders this federal election, which is less than two weeks old. And yet, we’ve heard almost nothing from the Liberals, Conservatives or NDP about crucial fiscal issues that affect all Canadians today and tomorrow.
For example, no party has a plan to control spending or balance the budget in its first term. So regardless of who wins the election, deficits will likely persist and the federal debt will continue to grow, putting Canada’s finances at risk.
A deficit occurs when spending exceeds revenues in any given year. It indicates the government is not paying for spending today but instead financing spending through borrowing. Eventually, someone must pay for this borrowing — namely future generations who’ll bear the burden of this debt (and the interest that accompanies it) through increased taxes.
And every dollar spent paying interest on government debt is a dollar diverted from other important programs (health care and education, for example) or tax relief (income tax reductions, for example).
Let’s do a quick review. Conservative Party Leader Andrew Scheer retracted his previous commitment to balance the budget in two years. Instead, he promises a “measured approach to spending growth” but with no commitment to reach budget balance in his first term as prime minister.
The NDP has made no commitment to balance the budget. Instead, NDP Leader Jagmeet Singh has committed to billions in new spending for a national pharmacare program, a child-care program and 500,000 new units of affordable housing, among other plans.
Four years ago, during the last federal election campaign, Liberal Leader Justin Trudeau promised to balance the budget by 2019. The Liberals quickly abandoned that plan after taking office and the deficit is expected to reach nearly $20 billion this year. Trudeau has made no such commitments to return to balance should he be re-elected.
Now some quick history. According to a recent study, the federal government may be repeating many of the fiscal mistakes that led to persistent and prolonged deficits from the mid-1960s to the mid-1990s.
During this time, Ottawa consistently ran deficits because of large increases in spending, which averaged 10% per year from 1965 to 1995. Overall, federal debt increased from $17.2 billion to more than $500 billion, culminating in a near fiscal crisis in the mid-1990s.
But large-scale reforms by the Chretien Liberals, who prioritized balanced budgets and smarter spending, put Canada’s finances back in order. In 1995, the federal government cut program spending by 9.7% over two years. Unlike “spending cuts” from previous governments, this was an actual cut in spending, not just a reduction in spending growth. The budget returned to balance quickly, federal debt was reduced and Canada was in a relatively stable position to weather the 2008-09 recession.
Unfortunately, recent years resemble the pre-reform era, defined by high spending and persistent deficits. Federal government spending (per person) increased from $7,740 in 2014 to a projected $8,804 this year. Indeed, in 2018 per-person inflation-adjusted spending reached its highest point in Canadian history.
Canada’s financial outlook is worrying. The country needs a new plan to control spending and restore fiscal balance.
Otherwise, we risk repeating the mistakes of the past, which produced perpetual and prolonged deficits and the consequences that accompany them.
A claim for equality of material position can be met only by a government with totalitarian powers. Friedrich August von Hayek