federal debt

Federal infrastructure spending—a mess of delays and misguided priorities

Only 10.6 per cent of the nearly $100 billion in new infrastructure spending is for trade and transportation.

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Federal Deficits and Recession: What Could Happen

There are serious financial risks associated with running deficits during times of positive economic growth. One of the principal risks is that the budget cannot be balanced regardless of economic conditions because a permanent imbalance between how much the government spends and the amount it raises from taxes and other revenues develops. The Trudeau government took office in late 2015 and immediately increased budgeted federal program spending by $8.1 billion over the period from 2015/16 to 2019/20. Less than six months later, in its first full budget (2016), the federal government markedly increased budgeted program spending by an additional $65.9 billion over the same five-year period. The increases in program spending meant the government purposefully moved from expected small surpluses to large deficits. The original 2015 plan presented by the Harper government was for a cumulative budgeted surplus for the 2015/16–2019/20 period of $13.1 billion.

The Liberal government’s first budget, introduced in early 2016, called for deficits between 2015/16 and 2019/20 totaling $104.3 billion, more than four times higher than originally proposed in their campaign platform. Again, these deficits were planned without an expectation of a recession or economic slowdown during the planning period. This paper estimates the potential annual and four-year cumulative deficits for the federal government if an economic slowdown or recession occurred. It does so by applying the experiences of three previous recessions (1982/83, 1991/92, 2008/09) and an economic slowdown (2000/01) to the current financial plans of the federal government.

Recessions automatically—without any policy changes—cause government revenues to decline and program spending to increase. For instance, the best known of these types of programs is Employment Insurance. During times of recession the revenues collected for EI will decline as people’s income declines or they are laid off. In addition, spending by the EI program automatically increases as more people collect EI benefits. In the most recent 2008/09 recession, spending on employment insurance increased from $14.1 billion in 2006/07 to $21.6 billion in 2009/10, an increase of 53.3%.

Often governments will also enact discretionary measures that further reduce revenues and/or increase program spending in response to recessions. The Harper government, for instance, introduced a large package of stimulus spending in the 2009 budget in response to the 2008/09 recession. The result of both the automatic revenue declines and spending increases coupled with possible discretionary policy changes is larger deficits.

If the 1991/92 recession, which had mild fiscal effects, was to repeat, the 2019/20 deficit is forecast to increase from its current budgeted level of $14.4 billion to $42.7 billion. The four-year accumulated deficit for the period from 2019/20 to 2022/23 would increase from $48.5 billion to $124.2 billion.

The economic slowdown of 2000/01 had more serious fiscal effects than the 1991/92 recession. If such an experience were repeated, the deficit for 2019/20 is estimated to reach $48.7 billion and the cumulative four-year deficit increases to $287.4 billion (current estimate is $48.5 billion).

Finally, if the conditions of the most recent and fairly serious recession of 2008/09 were repeated, the annual deficit for 2020/21 is expected to reach $120.5 billion. The four-year cumulative deficit is estimated to increase from $48.5 billion to $335.1 billion.

As many commentators, including the authors of this essay have noted, running deficits in times of economic growth, even periods of slow economic growth, risks much larger deficits when the inevitable recession occurs. This essay applies the experiences of three past recessions and an economic slowdown to the federal government’s current finances in order to estimate the possible fiscal effects of the next recession. The resulting decline in revenues and increase in program spending from recessions means much larger deficits and thus an accumulation of debt. The risks to federal finances from even a mild recession, let alone a more severe recession, given the current level of deficits are substantial and should be taken into consideration in future budgets.

Economists and media fuel confusion on Canada’s economy and economic policy

Statistics Canada’s August economic growth numbers show that the economy contracted.

Despite brisk economic growth, Ontario continues to rack-up debt

About 40 per cent of federal revenue comes from Ontario.

Prime Minister Trudeau on track to set record for increasing federal debt

Trudeau expected to increase per-person federal debt by 5 per cent by 2019.

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An Analysis of Federal Debt in Canada by Prime Ministers Since Confederation

Summary

  • Over Canada’s 150-year history, prime ministers have, in various ways, helped shape the country, often leaving a legacy that affects Canadians to this day. A key aspect to any prime minister’s legacy is whether they left the federal government more or less indebted.
  • This bulletin measures the total percent change in (inflation-adjusted) debt per person over the course of the tenures of various prime ministers since Confederation—from 1870 up to the end of current Prime Minister Justin Trudeau’s term in 2019. Adjusting for inflation and for population growth allows for a comparison of debt legacies by prime ministers over an extended period of time.
  • Historical context is important for understanding debt accumulation under various prime ministers. For example, total growth in debt per person under Sir Robert Borden (188 percent) and William Lyon Mackenzie King (145 percent) took place during global conflicts (World War I and World War II) and multiple economic downturns.
  • Economic downturns, which are out of the direct control of a prime minister, contribute to the accumulation of government debt. The federal government collects less revenue and spends more during an economic downturn as Canadians make greater use of services such as Employment Insurance.
  • However, of the prime ministers who did not face a global conflict or economic downturn during their tenure, the analysis finds that by the end of his term in 2019, Justin Trudeau is expected to be the largest debt accumulator (5 percent). The only other two prime ministers to increase federal debt without fighting a world war or experiencing an economic downturn are Sir Mackenzie Bowell and Sir John Abbott who both served in the late 19th century.