Federal government sticks to its soft fiscal targets—but this is no cause for celebration

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Appeared in the Western Standard, April 16, 2024
Federal government sticks to its soft fiscal targets—but this is no cause for celebration

Despite its tendency to violate its own self-imposed fiscal rules, according to the federal budget tabled on Tuesday, the Trudeau government will stick to the targets it established in its fiscal update last fall. But staying true to soft fiscal targets is no reason to celebrate, and this budget simply continues the Trudeau government’s irresponsible management of Canada’s finances.

As part of the fiscal update released in November, the Trudeau government laid out three fiscal objectives for this budget—maintain the 2023/24 deficit at or below $40.1 billion, lower the federal debt-to-GDP ratio in 2024/25 relative to the update and keep it on a declining track thereafter, and maintain a declining deficit-to-GDP ratio in 2024/25 while keeping deficits below 1 per cent of the economy in 2026/27 and beyond.

These represent the latest in a line of fiscal rules from the Trudeau government, which abandoned all of its previous rules (e.g. balancing the budget by 2019/20, reducing Canada’s debt-to-GDP ratio) once the government knew it was on track to violate them. And instead of adopting the restraint necessary to get back on track, the government simply moves the goalposts whenever it’s convenient to accommodate its lack of fiscal discipline.

Fiscal rules are self-imposed constraints meant to guide policy on government spending, taxes and borrowing, to prevent the deterioration of government finances with an eye on ensuring sustainability for future generations. But as the Trudeau government has demonstrated, they can easily be discarded.

But again, in a break from past behaviour, according to Tuesday’s budget forecasts, the Trudeau government will stick to all three of its most recent fiscal rules.

The government was quick to pat itself on the back, with Finance Minister Chrystia Freeland claiming its sticking to “a responsible economic plan.” But the government did not meet these targets due to spending restraint but rather because of higher revenue resulting from slightly higher than expected GDP growth and increased capital gains taxes (in the budget, the government increased the capital gains inclusion tax rate from 50.0 per cent to 66.6 per cent for capital gains realized above $250,000). Total revenues in 2024/25 are now expected to be $14.4 billion higher than forecasted last fall.

However, higher capital gains taxes will exacerbate Canada’s ongoing economic growth crisis and it’s doubtful the tax hike will raise as much revenue as expected. The government has also increased federal program spending by $77.2 billion over the next four years relative to last spring’s forecasts. This is far from “responsible” fiscal management.

Moreover, the government’s current rules do little to prevent debt accumulation. While the government was able to keep its 2023/24 deficit to $40.0 billion, this still represents a larger deficit than any the Trudeau government ran before COVID. There’s no balanced budget in sight—with deficits over five years adding more than $153 billion in additional debt. And federal debt interest costs equal $1,331 per Canadian this year.

Finally, should the government implement new spending in future fiscal updates and budgets, it may simply abandon its fiscal rules yet again. There are far more examples of the Trudeau government choosing not to stick to its targets than choosing to stick to them.

Rather than the fiscally responsible plan the Trudeau government claims, this budget simply represents a continuation of its ongoing mismanagement of federal finances.

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