According to a recent report from the Parliamentary Budget Officer (PBO), the Canadian economy is expected to stagnate in the second half of 2023 and the federal deficit will rise due to increasing government spending. Unfortunately, this recent grim financial news comes as no surprise.
Since taking office in 2015, the Trudeau government has shown a tendency to increase spending at every turn. This year’s Spring Budget projected that annual program spending (total spending excluding interest costs, adjusted for inflation) would increase by $132.7 billion – or 41% – between 2014/15 and 2023/24.
According to the PBO report, federal spending in 2023-24 will rise even more than previously expected, reaching $458.6 billion – $5.6 billion more than the government’s previous commitment – largely due to new spending Subsidies for the Stellantis and Volkswagen electric vehicle battery factories. and improvements to the GST rental rebate.
No surprise here either. By introducing new or expanded programs in almost every budget or budget update, the Trudeau government has demonstrated little to no semblance of fiscal responsibility. But governments simply cannot spend money to achieve prosperity, and expanding the size of the federal government comes at a cost.
In fact, the government continues to finance these spending increases with borrowed money in the hope that someone else will foot the bill in the distant future. However, continued government borrowing means increased uncertainty for entrepreneurs, investors and businesses as it increases the risk of future tax increases, reducing the profitability of current investments and at the same time putting our future prosperity at risk. Furthermore, younger generations of Canadians will bear the costs of rising debt through future tax increases.
And of course, when you borrow money, you have to pay interest. As debt levels rise and interest rates rise, as is currently the case, the government will have to spend more taxpayer money servicing the national debt. Interest costs on federal debt are expected to reach $46.4 billion in 2023-24 — billions more than originally forecast last spring and more than double the amount issued just three years ago.
Finally, the PBO report concludes that increasing government spending will lead to a $6.4 billion increase in the federal deficit this year compared to budget projections made last March. Even though we are long past the emergency phase that ravaged governments during the COVID-19 crisis, the annual federal deficit is significantly higher than before the pandemic.
It didn’t have to be like this. With some spending discipline in Ottawa, Canadians would benefit from lower national debt, lower debt interest costs and smaller budget deficits (or even surpluses). As a recent study shows, if the federal government had restrained spending starting in 2015, it could have run a $23.3 billion surplus this year. This surplus could have been used to provide meaningful tax relief to Canadian families. In 2016, the Trudeau government reduced the “middle class tax rate” from 22% to 20.5%. With a sizable surplus, it could have reduced that rate again, from 20.5% to 15.0%, and returned $18.7 billion to Canadians.
In Canada, federal spending and public debt are once again rising unnecessarily. The Trudeau government should end its spending spree now and ease the burden on taxpayers today and in the future.
Jake Fuss and Grady Munro are fiscal policy analysts at the Fraser Institute