Fraser Forum

It’s time for an honest conversation about the costs of new federal programs

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It’s time for an honest conversation about the costs of new federal programs

The Trudeau government will table its next budget on April 16, and with the government’s push on the initial steps of national pharmacare, it’s important to remember there’s a cost Canadians must pay for new and expanded government services.

In March, the Trudeau government and the NDP reached an agreement to introduce the first steps of a national pharmacare program that will initially cover diabetes drugs and contraceptives, but may eventually grow to cover far more. This marks the third major national social program introduced by the Trudeau government in recent years, accompanying the $10-a-day daycare and national dental care programs promised in Budget 2022.

These policies represent an approach by the federal government to expand its role in the funding and provision of social services—an approach which has support among Canadians. Polling data from 2022, which sought to understand Canadian views on new spending programs, revealed the majority of respondents supported $10-a-day daycare (69 per cent), pharmacare (79 per cent) and dental care (72 per cent)—when there were no costs attached.

The Trudeau government has chosen to fund these new programs primarily using debt. Through planned deficits and rising debt interest costs for the foreseeable future, Ottawa is shifting much of the burden of paying for today’s services onto future generations of Canadians. Put differently, the new services are not free, and must ultimately be paid for through higher taxes in the future because debt comes with costs.

It’s therefore informative to look at what happens to the popularity of these programs when the true costs are communicated to Canadians. Polling data clearly shows these new programs lose considerable support when linked to a direct cost in the form of an increase in the federal goods and services tax (GST). Indeed, support for government-funded pharmacare, dental care and daycare plummeted to well below 50 per cent of respondents if the services are paid for by increased taxes.

This is the key difference between Canada and countries such as Sweden or Denmark, which are often used as examples of countries that maintain expansive social services and income supports. These countries have gone much further than Canada regarding government provision of services, but have paid for it through corresponding tax increases applied to individuals and families today rather than through borrowed money. Moreover, the tax burden falls primarily on the middle class, which utilizes these services the most, as opposed to concentrating tax hikes on top income earners.

For example, Swedes earning more than US$62,000 per year face the country’s top marginal personal income tax rate of 52.3 per cent. In comparison, although Canada’s top marginal rate (53.5 per cent) is roughly the same level as Sweden’s, it doesn’t kick in until earnings of nearly US$177,000. Moreover, both Sweden and Denmark maintain a national sales tax rate of 25 per cent, while Canadians face sales taxes ranging from 5 per cent to 15 per cent (depending on the province). Simply put, the Nordic countries fund expansive government through high taxes on their citizens.

To put the cost of national dental care, day care and the first steps of pharmacare in context, an increase in the GST to 6 per cent from its current 5 per cent would be insufficient to pay for an estimated annual cost of at least $13 billion on these programs.

In recent years, the Trudeau government has introduced substantial social services without the corresponding tax increases required to pay for them. But increased federal spending will require higher taxes for families either today or in the future, and Canadians must remember this when deciding if they truly want these new programs.