The storm clouds are gathering over Canada’s financial situation, despite Prime Minister Justin Trudeau promising sunny days ahead in the Great White North. As the country waves goodbye to the coronavirus pandemic, a new threat has emerged that could decimate future generations: the post-crisis debt. According to a new government report, Ottawa is forecast to record a budget deficit each fiscal year until 2070. In an interview with Liberty Nation, Franco Terrazzano, the Federal Director of the Canadian Taxpayers Federation, recommends politicians begin rolling up their sleeves and saving households some money. With a possible early federal election, will the governing Liberals or the opposing parties heed this advice?
Sunshine on Canada’s Public Purse
The Parliamentary Budget Officer (PBO) recently published new supplementary data in its “Fiscal Sustainability Report.” The numbers suggest that the federal government will not balance the budget for 50 years. Over this period, Ottawa is forecast to accumulate $2.7 trillion in new debt, in addition to the current debt of $1.1 trillion. As well, interest charges are estimated to total $3.8 trillion over the next half-century.
Yves Giroux, the PBO, noted that adjustments in revenues and program spending would be necessary to stabilize the government’s net debt-to-GDP ratio over the long term. Ottawa must “eliminate its net debt and shift into a net asset position,” Giroux wrote in the paper. Indeed, these are a lot of big numbers, but do they mean anything to the average Canadian taxpayer?
“It’s a huge red flag for taxpayers to take this seriously,” Terrazzano told Liberty Nation. “It really brings up the issue of intergenerational fairness – or unfairness. All of this spending today is going to the special interests of today. But who is going to have to pay this tab? It’s going to be future generations. We’ve all heard the phrase, ‘Politicians like to buy votes with our money.’ In Canada, right now, politicians are buying votes with Canadians’ grandkids and Canadians’ great grandkids’ money.”
Liberal pundits would make the case that the growing debt and deficits are a result of the COVID-19 pandemic. Indeed, Ottawa put forward multiple programs to support Canadians during the once-in-a-century public health crisis, including the $74 billion Canada Economic Relief Benefit (CERB) But not so, says Terrazzano, noting that the pecuniary mess occurred well before the first reported infection. “If you look at 2018 and 2019, we had our federal government spending all-time highs, even considering inflation and population growth,” he said, adding that the Trudeau government was spending more than in any single year during World War Two, the Korean War, or any other recession.
The solution? According to Terrazzano, a few things could assist in returning Canada to some semblance of fiscal sanity: Make sure the costly COVID-related spending is temporary, ensure federal workers and politicians share in the tough times (elected officials received two pay raises during the pandemic), and push Ottawa to refrain from handing out corporate welfare. “The last thing we need are politicians and bureaucrats trying to play investment banker with our tax dollars,” Terrazzano added.
Is Anyone in Ottawa Taking This Seriously?
For weeks, there has been much speculation that Trudeau and the Liberals would call an early federal election sometime this fall. The Grits contend that Parliament is too dysfunctional to get anything accomplished, sending the prime minister into campaign mode, pledging a broad array of fresh goodies coast to coast. Despite a trail of broken promises and scandals, the latest polls suggest that the Liberals would be on the cusp of forming a majority government. Once again, Erin O’Toole and the Conservatives would be the Official Opposition, followed by Jagmeet Singh and the New Democrats. Put simply, nothing much would change from the electoral results in 2019, except potentially a few more seats for Trudeau.
While the writ has yet to be dropped, none of the parties have prioritized the nation’s ailing fiscal condition. Terrazzano agreed that voters are not seeing politicians take the deficit as seriously as they should. Although the Conservative Party pledged to balance the budget in ten years, the head of the CTF does not believe this is a good plan because of the extra debt and additional interest charges.
With the prime minister making a plethora of spending announcements, Terrazzano says Canadians need to ask politicians a simple and profound question: How are you going to pay for it all? “When you add up provincial and federal government debt, each Canadian owes about $57,000 in government debt by the end of the year,” he noted. “And that bill is only going to go up if these politicians keep going on with these spending announcements.”
Trudeau and the Ratchet Effect
In his seminal book, Crisis and Leviathan, economist Robert Higgs discusses the ratchet effect: The government seizes power during each crisis and never concedes it after the emergency has concluded. This year’s federal budget spotlighted that the prime minister does not want to rein in spending, choosing instead to hit the great reset button by spending tens of billions of dollars on climate change initiatives, COVID-related benefits, and so-called human infrastructure. Will the digital services tax, luxury goods levy, and higher sin penalties be enough to cover the bills or just nibble at the budget shortfall? Perhaps Trudeau is hoping that ignoring the absent loonies and toonies in his proposals will eventually carry out his economic supposition of budgets balancing themselves.
Read more from Andrew Moran.