Critics of Ms. Freeland acknowledge she did an admirable job during the pandemic. The problem, they say, is that she was slow to pull back on spending as the crisis faded, and she failed to emphasize fiscal consolidation during a period of rapid growth that followed. Ms. Freeland and Minister of Small Business Rechie Valdez hold a news conference at the National Press Theatre in Ottawa on Nov. 25.Sean Kilpatrick/The Canadian Press
In Chrystia Freeland’s shocking exit from Prime Minister Justin Trudeau’s cabinet, she decried his “costly political gimmicks” and the lack of fiscal dry powder to respond to possible trade wars.
However, observers argue that Ms. Freeland’s own legacy as finance minister may be defined by questionable spending decisions and a string of hefty deficits.
Critics are divided over Ms. Freeland’s record since she took the role of finance minister in August, 2020, when her predecessor, Bill Morneau, resigned over the government’s pandemic spending plans.
Ms. Freeland is credited with helping to kick-start the economy coming out of COVID-19 lockdowns and ushering in the government’s national child-care program. But her professed adherence to fiscal discipline clashes starkly with her record of high levels of spending.
In Monday’s fiscal update, the federal government said the deficit hit $61.9-billion for 2023-24, blowing past the $40.1-billion cap she had set out in the last fall economic update more than a year earlier.
“If we describe her primary job as getting our fiscal house back in order after COVID, I’m not sure she did it. In fact, I’m inclined to say that she didn’t do it,” said Christopher Ragan, an associate professor and director of McGill University’s Max Bell School of Public Policy.
Ms. Freeland’s term was defined by a punishing macroeconomic environment. Inflation surged as pandemic lockdowns ended, hitting a four-decade high of 8.1 per cent in 2022. The Bank of Canada responded by raising its policy rate from 0.25 per cent to 5 per cent over a year and a half. The rise in borrowing costs hammered household budgets and pushed up government debt-servicing costs, giving Ottawa less room to manoeuvre.
While countries around the world were dealing with similar issues, Ms. Freeland and Mr. Trudeau are widely seen as jointly sharing the baggage of high prices and high interest rates that have left the Liberals deeply unpopular with voters.
Tyler Meredith, a former economic adviser to both Ms. Freeland and Mr. Trudeau, said the two politicians had a particularly close working relationship, formed during their time in opposition and developed throughout the renegotiations of the North American Free Trade Agreement during the first presidency of Donald Trump. There were always some tensions, which exist between every prime minister and finance minister, Mr. Meredith said, but they overlapped on around 80 per cent of issues.
“They both hold responsibility for what has happened over the course of the last number of years. Good and bad,” Mr. Meredith said, pointing to child care, the pandemic response and Ms. Freeland’s work on North American trade negotiations before her time as finance minister as highlights of her career.
Even critics of Ms. Freeland acknowledge she did an admirable job during the pandemic. The problem, they say, is that she was slow to pull back on spending as the crisis faded, and she failed to emphasize fiscal consolidation during a period of rapid growth that followed.
“I think the main problem of this government, and she was certainly a key player in it, is they have not read the economic cycles,” said Robert Asselin, senior vice-president of public policy at the Business Council of Canada, who advised Mr. Morneau from 2015 to 2017.
“When the economy came back to its feet, they continued to overspend, they created more problems on the monetary-policy side and now they aren’t able to adjust because the economy is slowing down, unemployment is rising and they have more or less lost their fiscal buffers.”
In 2023, government spending at both the federal and provincial levels drew a rare rebuke from Bank of Canada Governor Tiff Macklem, who said that fiscal and monetary policy were rowing in the opposite direction when it came to getting inflation back under control.
Kevin Milligan, an economics professor at the University of British Columbia who advised the government on its response to the pandemic in 2020 and 2021, said that Ms. Freeland leaves federal finances in relatively good shape, compared with most other advanced economies.
The United States, for instance, faces a deficit this year more than three times the size of Canada’s relative to the country’s GDP. According to the International Monetary Fund’s latest fiscal outlook, Canada will post the smallest deficit among Group of Seven countries.
“International bond markets or any sensible economist would look at this and say the public finances are in decent shape in terms of sustainability,” Prof. Milligan said.
“That said, the more subtle and I think more biting critique is whether the quality of public spending has been there, and whether every particular line item is good value for money. I think there’s a lot of room for people to push on that.”
After the pandemic-oriented budgets of 2021 and 2022, Ms. Freeland’s focus turned first to industrial policy and then to housing. Her 2023 budget was defined by tax credits aimed at renewable energy and electric vehicles, in response to unprecedented industrial-policy spending in the U.S. as part of President Joe Biden’s Inflation Reduction Act.
The 2024 budget looked to accelerate housing construction across the country with incentives aimed at municipalities and developers, and funded by an increase in the capital-gains tax on wealthy individuals and companies.
“I actually think the feds have done not a bad job once they recognized there was a problem,” Prof. Ragan said of the government’s response to housing affordability issues. “I think the industrial-policy stuff, the EV subsidies, I think we will come to regret those policies.”
Dan Kelly, chief executive officer of the Canadian Federation of Independent Business, has faced off against Ms. Freeland on a number of issues, including capital-gains changes and the sales-tax holiday, but he praised the former finance minister for her willingness to listen and compromise.
“She made a lot of bad policies less worse,” he said.
Critics argue that Canada’s weak business-investment climate and poor labour-productivity levels are stains on Ms. Freeland’s legacy, blaming the Trudeau government’s tax policies for discouraging investment, even as it spent heavily on corporate subsidies to boost specific sectors such as electric-vehicle batteries.
“I look at the productivity numbers, the business investment numbers, there has not been a real pro-growth agenda with this government, and obviously it’s not her sole responsibility. It’s also on the PM’s shoulders. But I think she was obviously a main character as a finance minister,” Mr. Asselin said.