Prime Minister Justin Trudeau speaks during a Laurier Club Holiday Party event in Gatineau, Que., on Dec. 16.Spencer Colby/The Canadian Press
Yes, the federal deficit is bigger than it should be. That’s not what should worry you. The government is not out of money. Not even close. But it is plumb out of ideas.
Is the country bankrupt? No. But this government is spent.
The cupboard is bare. Not the fiscal cupboard. The intellectual larder.
If it were necessary, Canada could run considerably larger deficits – I’m not recommending it, I’m just pointing out that, in the event of a fire, we’ve got water in the hose. Another pandemic? Global depression? World war? World trade war? If it’s truly necessary to spend and borrow more, and if the government has good ideas for all that extra spending, then have at it.
But that’s not where we are.
Financial bankruptcy may await this country in some distant future, but long before that we’ve already hit intellectual bankruptcy – the point at which a government, having run out of higher purpose, has worked its way down to the very bottom of Maslow’s hierarchy of needs, leaving it chasing after mere survival.
That’s where we are.
If finance minister Chrystia Freeland had not abruptly resigned on Monday morning, hours before she was to present the fall economic statement, the headlines were going to be about the size of the federal deficit. The budget shortfall for the fiscal year that ended last March has been revealed to have tipped the scales at $61.9-billion, or more than $20-billion above last spring’s budget plan. We in the media could see what was coming, and His Majesty’s Loyal Punditocracy was preparing long column inches on the fiscal crisis it surely portends.
I hate to be the bearer of good news, but there is no fiscal crisis. Not yet. As I’ve pointed out in past columns – if you don’t want to believe me, believe the IMF – Canada is in relatively good fiscal shape compared with the rest of the G7. Ottawa’s closest relative, the U.S. federal government, ran a deficit of US$2-trillion last year, equal to 7 per cent of gross domestic product. That’s three-and-a-half times the size of Ottawa’s deficit. And the American figure is likely headed higher, perhaps much higher, under the incoming Trump administration.
And Canada? As the economic statement puts it: “The federal debt-to-GDP ratio in 2023-24 was 42.1 per cent, exactly as forecast in Budget 2024, reflecting stronger than expected economic growth after historical revisions … This is a meaningful improvement from 47.2 per cent in 2020-21, at the peak of the pandemic.”
The economy grew a bit more than expected last year, as a result of which – and despite a deficit more than 50 per cent larger than promised – the debt-to-GDP ratio did not shoot up. The fiscal anchor is still in the water.
Nor can it be argued, as the Conservatives have argued, that the federal deficit is causing inflation. If there were such a simple relationship, the hyper-deficitary U.S. would be experiencing hyper-inflation. It isn’t. And in any case, though politicians have yet to get the memo, inflation isn’t one of Canada’s 99 current problems. That’s why the Bank of Canada cut its benchmark interest rate by half a per cent last week.
It may even be true that most voters no longer care about the size of the budget deficit – evidence for which see Ford, Doug, Premier, Ontario.
But the Trudeau government last year spent, and appears always determined to spend, every last extra cent, and a few cents more, even in relatively good times. What’s worse, its eye and its dollars are increasingly drawn to what Ms. Freeland’s resignation letter devastatingly but fairly called “costly political gimmicks, which we can ill afford and which make Canadians doubt that we recognize the gravity of the moment.”
The newest gimmick is the temporary GST/HST cut that kicked in over the weekend, knocking the tax off such national strategic imperatives as jigsaw puzzles, Christmas trees and booze. Coming soon, if this government lasts and the opposition co-operates, could be $250 cheques for almost everybody. All paid for through billions of dollars of borrowing against the future rather than investing in it.
Why stop there? Mr. Ford’s Ontario government brought in a deficit-financed “temporary” gas tax cut in 2022. It’s still going. It gets re-announced and extended every few months. Don’t think Ottawa hasn’t noticed.
I mistakenly believed the Trudeau government had plumbed the depths of spending incoherence when it tried to buy senior votes by promising those 75 years of age and over a 10-per-cent bonus on their Old Age Security. Since 2022, billions of extra borrowed dollars a year have gone to people who for the most part are nowhere close to living in poverty.
Earlier this year, the Bloc Québécois pushed for the OAS bonus to be extended to those aged 65 to 74. Of course they did. This is what our politics has come to.
“The gravity of the moment” for the Trudeau government is that it may not be the government for much longer. The gravity of the moment for the country is that we are facing an incoming U.S. administration that may intend to harm us economically, and whose protectionist impulses risk making the world a more dangerous and poorer place. Beyond that, Canada is suffering from encampments in the parks, addictions in the streets, crime in our neighbourhoods, an explosion in the number of refugee claims, anemic economic productivity and negative GDP per capita for two years running.
But the Trudeau government is now in its bunker phase. It’s in a deep crouch, not against this world of problems, but against its own lack of popularity, and even against itself. Something has to give. Something has to change.