Freeland’s comments on federal budget are head-scratching and misleading
After the tabling the federal budget on Tuesday, Finance Minister Chrystia Freeland appeared on CTV’s Power Play. During the interview, she made many misleading and head-scratching statements.
For starters, Minister Freeland called the 2023 budget a “very fiscally responsible budget.” By most metrics that is not the case. The government substantially increased program spending and deficits relative to their previous projections from last year. Budget deficits in 2022 and 2023 were up by $6.6 billion and $9.5 billion respectively compared to the fall 2022 economic statement. Spending (excluding interest costs) rose $11.4 billion in 2022 and $16.5 billion in 2023 above what was forecasted in last spring’s budget. All at a time when the economy is already dealing with high inflation, meaning we risk adding more fuel to the fire.
Moreover, the Trudeau government broke its own fiscal rule in the budget. In the fall, the government committed to reduce debt as a share of the national economy to keep federal finances in check. Five months later, it has violated this fiscal rule. Federal debt is projected to rise from 42.4 per cent of GDP in 2022 to 43.5 per cent of GDP in 2023. It’s difficult to see how it’s fiscally responsible to break your own self-imposed rule.
Minister Freeland also said the budget was fiscally responsible because the deficit will steadily decline over time. But this statement should be taken with a grain of salt. First, we cannot take the deficit projections at face value based on the government’s track record of increasing spending and borrowing beyond its own projections at almost every turn. The government rarely meets it own targets and constantly moves the goal posts in subsequent fiscal updates or budgets.
For instance, Budget 2019 made projections for fiscal years from 2019/20 through 2023/24—specifically that deficits would steadily decline to 0.5 per cent of GDP in 2022 and 0.4 per cent in 2023. This year’s budget tells a different story. Deficits will be much higher than previously thought at 1.5 per cent of GDP in 2022 and 1.4 per cent in 2023.
In familiar fashion, the 2023 budget projects deficits will return to 0.5 per cent of GDP in 2026 and 0.4 per cent in 2027. It’s a bad case of déjà vu. The new fiscal plan of steadily declining deficits is eerily similar to the 2019 budget plan.
Another cause for concern was the minister’s retort when pressed about the government abandoning its previous projection of a return to balanced budgets by 2027/28. “We very intentionally,” she said, “didn’t say in the fall ‘Yay we’re going to have a surplus hooray.’” Admitting that you weren’t committed to achieving a balanced budget isn’t reassuring. It confirms the government did not believe in its own fiscal plan outlined in November’s fiscal update.
Based on the minister’s comments, a balanced budget was never even a realistic goal for the government in the first place. Why should Canadians now believe the projections of Budget 2023 when the government evidently doesn’t take its own fiscal projections seriously? Why should Canadians have confidence that deficits or debt will actually decline as a share of the economy over the next five years as the minister claims?
Finally, in her budget speech Minister Freeland said Canada has the lowest debt-to-GDP ratio in the G7. This statement is misleading for two reasons. First, the minister is purposely limiting the comparison to a small subsection of industrialized countries. When we extend the analysis to a broader group of 29 OECD countries with comparable data, Canada is 11th for net debt as a share of the economy in 2022.
The second issue with this comparison is that net debt measures a country’s government debt after financial assets are deducted because there’s an implicit assumption that financial assets could be used to offset debt. However, Canada’s financial assets include the Canada (CPP) and Quebec Pension Plans (QPP). These financial assets cannot be used to reduce total liabilities without infringing on the ability of the pension plans to meet their obligations to both current and future retirees. If we instead use an alternative measure of gross debt, Canada’s level of indebtedness looks considerably worse and we rank 20th of 29 OECD countries in 2022.
Several claims made by the finance minister about the federal budget were dubious and should raise eyebrows. Contrary to the rhetoric, this was not a fiscally responsible budget.