Prime minister's ‘fiscally responsible’ track record is pure fantasy
On Thursday, the Trudeau government will release its fall economic update, which shows Canadians the current state of the government’s books. According to recent comments by Prime Minister Trudeau, “remaining fiscally responsible” will be essential for his government given the possibility of an impending recession.
But here’s the problem—to remain fiscally responsible, you first must demonstrate fiscal responsibility. For example, during good times, governments should restrain spending and run budget surpluses to pay down debt accumulated during tough times (i.e. recessions).
Unfortunately, the Trudeau government has shown a proclivity to spend and accumulate debt. Since taking office in 2015, the prime minister has recorded the four highest levels of federal spending per person (excluding debt interest costs) in Canadian history (2018, 2019, 2020 and 2021). Before COVID, in 2019/20 per-person federal spending reached $9,671, the highest level ever at that time. Spending levels rose dramatically during the pandemic, peaking at $17,121 per person in 2020/21 (although a recent study estimated that only 35 per cent of this spending related to COVID).
Another sign of the Trudeau government’s lack of prudence is how it treats unexpected revenues. At every turn, the government has spent this additional revenue rather than put it towards deficit reduction.
For instance, in 2018/19 the government presented a full budget in the spring and a fiscal update in the fall. In the period between the budget and the update, revenues were $5.5 billion higher (and interest costs $2.5 billion lower) than budgeted, resulting in a windfall of $8.0 billion. But rather than reduce the budget deficit, the government chose to increase spending by exactly $8.0 billion.
Even now, the Trudeau government is benefitting from high levels of inflation, which pushes federal revenue higher. But if it behaves as it did before, the government will spend this unexpected money and fail to reduce the deficit, thereby acting irresponsibly with finances again.
Consequently, federal debt under the Trudeau government grew considerably both before and during COVID. Between 2015 and 2019, Ottawa ran five consecutive deficits, causing federal debt (total liabilities minus financial assets) to rise by $112 billion.
From 2019 to 2021, Canada had the second-highest increase in debt (as measured by the gross debt-to-GDP ratio) out of 33 high-income countries, behind only Japan. However, despite this increased debt load, Canada ranked among the bottom half of those same countries on economic growth metrics during that time.
Why should Canadians care? Because more debt will lead to tax increases and higher debt interest payments that younger generations will have to pay, leaving less money for important priorities such as health care and social services.
Finally, in addition to a looming recession, Canada faces weak economic growth prospects, an aging population, and an ailing health-care system. If the Trudeau government’s solution to these problems is to simply spend—even if it’s deemed “responsible”—the government will once again act irresponsibly with federal finances.
In light of the Trudeau government’s poor track record on spending and debt, it’s difficult to understand what the prime minister means by his commitment to remain “fiscally responsible.” If it means more of the same, then Canadians should be very concerned.