Our Margareta Dovgal on mixed messages from the latest budget.
The new federal budget proposes $52.9 billion in new spending over five years, with some tax increases — and some worrisome deficit numbers.
The federal deficit is projected to be $39.8 billion for the budget year — which would bring Canada’s national debt to a record $1.3 trillion.
That total is more than $33,000 owed for and by every Canadian. (To which you can add almost $21,800 more more per head for current provincial deficits.)
In short, Finance Minister Chrystia Freeland’s new budget means a national dental care program and a long-promised disability benefit, but debt going up; national pharmacare, but debt-servicing charges going up; support for building housing and a carbon rebate for small businesses, but several taxes going up, bringing in an estimated $20 billion in new tax revenue.
A primary tax that is going up is the capital-gains tax, an increase aimed at Canada's highest earners.
However, with bigger deficits forecast in every year ahead than was previously projected, the budget — titled Fairness for Every Generation — notes that federal public debt charges are on track to balloon to $64.3 billion in 2028-29.
Aside from the weeks long pre-budget blitz of expected new measures and promises, the 2024 budget includes some additional offerings for small businesses and entrepreneurs – including through a new carbon rebate – and finally puts dollar figures on the first phase of national pharmacare, as well as the long-promised disability benefit.
Overall, the 2024 federal budget includes $52.9 billion in new spending plans – some of which is loan-based and reliant on provincial buy-in – as well as an estimated $20 billion in new tax revenue, including increased tobacco and vaping taxes.
According to the budget, the federal deficit is projected to be $39.8 billion in 2024-25, $38.9 billion in 2025-26, but to decline over the three years following, to $20 billion by 2028-29.
And with interest rates as high as they are, repayment of the national debt now exceeds all of the money spent by the federal government on health care, including transfers to the provinces.
Freeland did hit her target of maintaining the 2023-24 federal deficit at $40.1 billion, and will be lowering the debt-to-GDP ratio in the current fiscal year. She's also standing firm on her plans to "refocus" $15.8 billion over five years and $4.8 billion ongoing in government spending.
"Our renewed focus today is unlocking the door to the middle class for millions of younger Canadians," Freeland wrote in the foreword to the 416-page budget.
Speaking with reporters inside the budget lockup, Freeland defended her new revenue plan as helping "make life cost less for millions," while touting that the Canadian economy is outperforming expectations and on track to continue to improve in the year ahead.
However, some economists warn not enough is being done on the productivity side.
Fred O'Riordan, the national leader for tax policy at EY, told CTV News that in his view, it was the "missing element" of the budget. "There are very few measures that are designed to increase capital investment and enhance labour productivity."
And Canadian Chamber of Commerce CEO Perrin Beatty said: “Instead of using a revenue windfall to reduce the deficit more quickly, the government chose to use it, along with changes to the capital gains tax, to fund this new spending.
“What's still missing is a clear plan to promote productivity and restore economic growth in Canada. Canada continues to slip further behind our competitors in both of these categories.
“Our lagging productivity and stalled GDP growth means Canadians are becoming collectively poorer and working harder to just remain where they are today.”
The Canadian Association of Petroleum Producers (CAPP) weighed in with: “The Bank of Canada has rightly warned that weak productivity and low business investment represent a national emergency.”
And CAPP said: “All Canadians should be distressed that the OECD is projecting Canada to be the worst-performing economy – dead last – of all 38 advanced countries over the next forty years.
“Political leaders of all parties should be seriously alarmed that for the past seven years Canada’s investment growth rate has ranked 44th out of the 47 countries tracked by the OECD.”
All of this is raising concerns that Canada is becoming even more uncompetitive, sending to entrepreneurs and innovators a signal that maybe they shouldn't invest in Canada because there are more attractive bets elsewhere.
We got used to ballooning federal spending during the COVID pandemic, in an effort to keep the economy moving, and to keep Canadians from feeling the full brunt of the economic impact of COVID.
We’re now well out of the pandemic, but that borrowing lives on in the form of a hefty servicing cost in our new federal budget.
In fact, with interest rates as high as they are, the cost is so heavy that repayment of debt exceeds all of the money spent by the federal government on health care, including transfers to provinces.
There may be a sense of positivity among those who want to see more government programs. And more spending is hardly a surprise in a pre-election budget (the next federal election will take place on or before October 20, 2025.) But those programs all have to be paid for, and Ottawa has chosen to do it by borrowing more and more.
As for the politics, you can look on the budget as one from a late-term government, elected on a socially progressive mandate, and keen to deliver on the most ambitious programs while there's still an opportunity to do so; and from a government that may also recognize that once large scale programs are implemented, they're really hard to roll back or fully deconstruct by future governments.
On the other hand, the budget gives Opposition MPs and candidates much opportunity to talk to voters about irresponsible spending and funding. And any successor government would be more prone to austerity approaches to bring spending into line.
There’s an old saying: “If you tax and spend, eventually you run out of other people's money.”
We’ll be hearing variations on it through that next election.
- Margareta Dovgal on these issues, and more, on Vancouver’s Spice Radio: https://ow.ly/hxsB50QvfJ9
Margareta Dovgal is Managing Director of Resource Works. Based in Vancouver, she holds a Master of Public Administration in Energy, Technology and Climate Policy from University College London. Beyond her regular advocacy on natural resources, environment, and economic policy, Margareta also leads our annual Indigenous Partnerships Success Showcase. She can be found on Twitter and LinkedIn.