Canadians are buying the Mark Carney brand, but can he deliver the product?

Open this photo in gallery:

Eugene Lang is acting director at the School of Policy Studies, Queen’s University.

Brigid Waddingham is a graduate student at the School of Policy Studies.

Last year, the Trudeau government – never known for its fiscal probity – projected a $48-billion deficit and took heat for it. Today, the Carney government seems poised to nearly double that figure, yet this is almost a non-issue. Prime Minister Mark Carney’s economic chops and business-brand strength are letting him off a hook that would hang anyone else.

A BMO Economics report in July said “it wouldn’t be surprising to see the federal deficit jump toward $80 billion, or about 2.5% of GDP.” The C.D. Howe Institute expects a $92-billion fiscal shortfall, the largest in a decade and a half (outside the pandemic years). The Parliamentary Budget Officer has labelled federal finances unsustainable and foresees a $68-billion deficit.

Why has the fiscal picture deteriorated so much?

“Events, dear boy, events,” as former British prime minister Harold Macmillan once said, have played a role. The economy is slowing, with growth now expected just above 1 per cent, dragged down by U.S. President Donald Trump’s tariffs and the uncertainty they stoke, depressing federal revenue and boosting government outlays. Mr. Carney’s own “middle-class tax cut” has carved a hole in Ottawa’s finances. And big-ticket commitments abound: $9-billion for defence and $13-billion for housing are just two examples.

Tony Keller: When Mark Carney visits Donald Trump, the best outcome might be none at all

But that hardly explains why Ottawa is abuzz about an impending austerity budget on Nov. 4. The Prime Minister has sown this confusion by claiming it will be “an austerity and investment budget at the same time.”

Deficits of $70–billion to $90-billion are normally called profligate. To label them austere brings new meaning to that word.

Austerity usually means deep spending cuts or tax hikes. Think of the 1995-97 period. Both Mr. Carney’s governing and rhetoric belie this. In addition to substantial new spending and tax relief, the Prime Minister insists social programs and transfers to provinces will remain untouched. To be sure, a 15-per-cent cut to federal operations is on the horizon, along with reductions in the public service – but only through attrition, hardly enough to offset a big deficit. And tax increases are off the table.

So why is Mr. Carney getting away with this apparent doublespeak?

No one knows Mr. Carney and everyone knows Mr. Carney. His brand – economist, central banker, Davos man – seems to carry extraordinary weight with the public. Mr. Carney said it will be an austerity and investment budget – and so it will be, never mind the numbers. His only nod to the contradiction is his assertion – “And that is possible if we’re disciplined.” What discipline means is left vague. That it sounds credible at all is owed entirely to his reputation.

A doctorate in economics from Oxford, an early career at Goldman Sachs, a stint at the Department of Finance, and a reputation as the only person to govern two G7 central banks – the Bank of Canada and the Bank of England – cements the brand. He is the Rolex of sound finance, the Rolls-Royce of economic competence, the Prada of prudence. Mr. Carney’s aggressive interest-rate cuts during the 2008 financial crisis are credited with helping Canada weather the global recession better than most countries.

Konrad Yakabuski: Carney’s foreign policy should focus less on pontificating and more on partnering with allies

So when Mr. Carney says he can manage crises, that austerity and investment are not incompatible, and when he implies Canadians can have guns, butter, tax cuts and a smaller deficit – many believe and trust him, including the ever-skeptical banks. That same BMO report predicting a deficit of $80-billion calls that “more palatable” than the deficit increases of the Trudeau government.

Justin Trudeau once promised that the “budget will balance itself” and was pilloried for saying so. But isn’t Mr. Carney saying much the same thing? Trim government at the edges, layer on big spending and tax cuts he claims will spur growth, and deficits will melt away.

Only Richard Nixon could go to China in 1972 because only a fervent anti-communist had the credibility to do so without looking weak on communism. Likewise, only Mr. Carney can deliver a huge budget deficit and modest spending cuts, and get away with calling this austerity.

Nearly a century ago, the American novelist F. Scott Fitzgerald famously remarked: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Mr. Carney is clearly a Fitzgeraldian, and so far the public is with him. A few years from now, Canadians will either conclude their faith in his brand was justified, or that the austerity and investment budget of 2025 was a charade. Only time will tell.