Budget 2023—a reckless approach to federal finances
In the weeks preceding the federal budget, Finance Minister Chrystia Freeland repeatedly stated it was time to “exercise fiscal restraint” as the government could not afford to “pour fuel on the flames of inflation.” However, the minister’s rhetoric did not match the details of the budget she just tabled.
The budget does not demonstrate fiscal prudence. It includes several new measures or expanded programs. The government introduced clean energy tax credits worth billions and an extension to double the GST rebate. This plan comes with many problems. For instance, the GST rebate is poorly targeted, raising costs higher than they otherwise would be, and provides money to those who don’t necessarily need it. According to a recent analysis, the government spent an estimated $340 million in 2021 providing the GST credit to young people who work part-time, go to school and live in high-income households.
Though it was expected, health-care transfers also increased dramatically and the Canadian Dental Care Benefit was revealed to be significantly pricier than originally anticipated as coverage was expanded. The program’s annual costs are expected to surpass $4 billion by 2026.
The budget projects 2023/24 federal program spending will now reach $453.0 billion, an increase of $16.5 billion from the previous budget’s estimates and $83.9 billion more than what was planned in Budget 2019 for fiscal year 2023/24. On a per-person inflation-adjusted basis, federal program spending is forecasted to reach $11,476, which is roughly 7.4 per cent above the levels observed in 2019/20—the final year before COVID and one of the highest spending years in Canadian history.
There still was no money provided for national pharmacare, though, which means the government’s spending will only increase from here in the years ahead. Previous estimates suggest a universal single-payer pharmacare program could cost anywhere between $15.0 billion and $32.7 billion annually.
This increased spending in the budget should not come as a surprise. The Trudeau government has a habit of increasing spending at every turn. Restraint and fiscal responsibility have largely fallen to the wayside as new or expanded programs are rolled out in nearly every budget or fiscal update. But we cannot spend our way to prosperity, and an expanded federal government comes with costs.
While the scale of deficits has fallen from peak levels during COVID, the budget indicates the government is once again avoiding a balanced budget over the planning horizon, which extends to 2027/28. The fiscal plan outlines a deficit of $40.1 billion in 2023/24, which is nearly $10 billion higher than what the government projected in November. Deficits in the subsequent four years will average $22.9 billion, a substantial increase from the $9.7 billion average expected in the fall fiscal update.
These deficits come despite increased revenue relative to last spring’s projections. The fiscal plan shows federal revenues are projected to be $27.3 billion higher in 2023/24 and $76.8 billion higher over the following three years than forecasted in Budget 2022.
There’s also no target date for a return to black ink. This is especially disappointing since the government had committed just five months ago to balance the books by March 2028. To be sure, the 2028 timeline was weak, as the balanced budget would not occur until after the government’s current term, rendering the goal almost meaningless. But without a target at all now, the country will continue to plunge deeper into debt for at least the majority of the decade.
Sustained government borrowing means heightened uncertainty for entrepreneurs, investors and businesses, as it increases the risk of tax hikes in the future, dampening the viability of current investment while endangering our future prosperity.
Federal debt (net debt minus non-financial assets) is expected to climb by $131.8 billion by 2028. What’s more, the government expects to violate its own fiscal rule of declining its debt relative to the size of the economy. Before the budget, the government had a 30 per cent likelihood of violating its rule over a 10-year period and 53 per cent chance over 20 years. Now, it appears the government is already breaking its rule in the span of one year. Federal debt (as a share of the economy) is forecasted to grow from 42.4 per cent in 2022 to 43.5 per cent in 2023.
Without an effective fiscal rule to keep the government’s spending and debt in check, the government is operating as a ship without a rudder or anchor. There’s no sense of direction and nothing to keep it from drifting astray.
Finally, the government’s deficit projections arrive by choice rather than need. Emergency COVID programs have wound down or expired and revenues are much higher than what was anticipated a year ago. Had the government simply returned spending to 2019 per-capita levels, Ottawa would be in a surplus position next year. Running persistent deficits and increasing debt are the result of poor decision-making.
More government intervention, spending and debt are not the keys to success for Canada’s fiscal future. Layering new spending on top of old and expanding the size of government will not drive down inflation or grow the economy. This year’s budget simply continues a reckless approach to federal finances.
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