With his new majority government, Prime Minister Mark Carney has a second chance with the fiscal update to take the kind of bold action needed to rejuvenate the economy and bolster national sovereignty.Edgar Su/Reuters
The Carney government’s first budget was, despite the lofty rhetoric preceding it, a missed opportunity. Rather than transformational, it was at best incremental. Rather than breaking with the spendthrift ways of the Trudeau government, it cemented those bad habits. Rather than lay out a path of major reform, it charted a course of tweaks and adjustments.
But the Liberal government that presented that unimpressive November budget was a minority government, one that needed the support of other parties to secure parliamentary approval of its plans. Now, Prime Minister Mark Carney has a majority - and a second chance, in Tuesday’s fiscal update, to take the kind of bold action needed to rejuvenate the economy and bolster national sovereignty.
What would bold look like? It would be a mix of immediate pivots and longer-term reforms, all of which would be aimed at creating a more competitive and entrepreneurial economy, and in doing so, better insulate Canada from the economic tempest of the Trump administration.
Jake Fuss: On the economy, Carney remains committed to the Trudeau playbook
A report last week from the C.D. Howe Institute makes the excellent point that today’s federal government (and most of the provinces) are repeating the “fiscal fantasy” of the 1970s and 1980s by treating slower economic growth as a cyclical rather than long-term phenomenon. Absent measures to kick-start productivity, it’s a dangerously wishful thinking to count on economic growth reducing deficits and shrinking the relative size of public debt. Tough decisions will have to be made.
The biggest pivot needed is away from the mindset of permanent deficits. Mr. Carney had promised to “spend less, and invest more” by limiting the growth of spending focused on current consumption. So far that promise is not showing up in Ottawa’s bottom line.
In the fall budget, the Carney government is projecting bigger deficits than did the Trudeau government. Mr. Carney has already discarded the fiscal guardrail that he campaigned on last spring, for the deficit to shrink relative to the economy through to fiscal 2028. Instead, the deficit-to-GDP ratio was projected to more than double from fiscal 2025, the last year of the Trudeau government, to fiscal 2026, the first year of the Carney government. If the government were to stick to its projections, the deficit-to-GDP ratio would still be higher by the end of the decade than its 2025 starting point.
Yes, defence spending has risen. But it’s up to the government to make the necessary fiscal adjustments, not simply run up the national debt. The C.D. Howe report makes the point that the government should lay out a path to balance within four years. That is critical: The Carney government has a majority and can govern through to 2030. It has all the runway it needs to restore order to federal finances.
Ahead of the budget, government sources were indicating that the deficit would be smaller than previously forecast because of upward revisions in GDP, although it’s not clear how much the government will choose to use for deficit reduction versus new spending. (Already, $2.4-billion is out the door, with the temporary elimination of federal fuel excise
A real restructuring and downsizing of the federal bureaucracy would help in achieving fiscal balance. As we’ve previously noted, the Liberals have not presented a vision for a smaller, leaner public service that would then allow them to restructure and consolidate government departments.
Instead, there is a modest pruning that will lock in most of the bloat from the Trudeau era. The Carney government aims to return to the staffing levels of 2022, viewing that as “sustainable.” It is not.
So, bold action on the fiscal front in the spring update would look to return the civil service to the pre-pandemic levels of the first Trudeau government as part of a four-year plan to eliminate the deficit. (And, for good measure, scrapping the “operating budget” sleight of hand introduced in the November budget.)
Those are the immediate moves. Longer term, Canada is in desperate need of regulatory and tax reform to spur private-sector investment, boost productivity and close the fiscal gaps of Ottawa and the provinces. Those reviews should have been launched in the fall. The next best time to launch them is in Tuesday’s fiscal update, with the goal of arriving at a plan of action for the 2026 budget. There is no justification for a slow walk; the problems and solutions are well understood. All that’s needed is political boldness.