Throne speech may offer fundamental choice to parents about Canada’s future
According to various members of the Trudeau government including the prime minister, Wednesday’s throne speech and potential upcoming fall budget—both matters of confidence that could force an election—represent an “unprecedented opportunity” for historic transformation of Canada’s economy and society more broadly. Government programs rumoured to be under consideration include a guaranteed income program, national drug coverage (pharmacare), national daycare and several green initiatives.
What’s being missed, and what ties all this together is how such considerations present a fundamental choice to parents (and grandparents) about federal finances and their children’s future.
It’s important to place these initiatives in context. The fiscal “snapshot” released by the federal government estimated the budget deficit at $343.2 billion in 2020-21 compared to the originally budgeted deficit of $28.1 billion. The larger deficit is a result of both lower government revenues ($83.5 billion) and much higher government spending ($239.0 billion) due mainly to the recession and the COVID pandemic. The $343 billion deficit means that federal debt will exceed $1 trillion.
Shortly after the snapshot, however, Ottawa extended the CERB program and increased access to EI and the new Canada Recovery Benefit, the successor to CERB, at an estimated cost of $37 billion.
The annual interest costs on just the debt accumulated this year alone is $6.3 billion, and that assumes interest costs remain at historic lows. If interest rates return to 2019 levels, which were themselves historically low, interest costs on this year’s debt increases to $11.7 billion.
And contrary to Prime Minister Trudeau’s continued claims, these costs are not one-time expenses, they’re ongoing. In other words, taxpayers will incur $6.3 billion annually for just the debt incurred this year.
And while the prime minister is correct that interest rates are at all-time lows, he cannot guarantee what the future holds. Indeed, the cost of borrowing could increase without interest rates changing if lenders believe Canada is becoming a bigger credit risk. For instance, the Fitch credit rating agency already downgraded Canadian debt, indicating higher risk.
At a time of near unprecedented borrowing in response to an unprecedented public health-induced recession, the Liberals are contemplating major new social programs. The prime minister has assured Canadians that he won’t raise taxes now, which means all spending will be financed by borrowing, which raises the question for parents (and grandparents)—will they support new social programs that benefit them today but ask (actually require) their children and grandchildren to bear the costs?
And let’s be clear, those costs will be substantial. They will come in the form of higher taxes in the future, which the government all but admitted when clarifying it’s no new taxes “now” stance. Remember, this government has already floated ideas for raising a variety of taxes on professionals, entrepreneurs, homeowners and businessowners.
And they’ll also likely see increased interest costs on the national debt, which means a larger and larger gap between the taxes paid by taxpayers and what they actually receive from government. In fact, annual debt interest costs on the national debt will almost double to $36.2 billion if interest rates return to 2019 levels, which again were historically low. You can imagine what happens if rates rise further.
If the statements and signals from Ottawa are accurate and not just politics, parents (and grandparents) will face a generational question that will affect the prosperity and well-being of younger generations. Are parents willing to impose real costs on their children so they themselves can benefit from government programs today? While the government will never pose the question in this manner, it’s the decision we face as Canadians.