If anybody was hoping the federal budget would show signs of spending restraint, those hopes were dashed on March 28. NDP Leader Jagmeet Singh’s immediate and enthusiastic support for Chrystia Freeland’s third budget as finance minister indicates just how high-spending it is.
While the Liberal government likes to talk the talk when it comes to responsible spending, it just can’t bring itself to walk the walk at budget time. Just last fall the budget deficit was projected to be $30.6 billion. That budgetary deficit has expanded to $40.1 billion. Projected government revenues dropped by $5.7 billion due to a slowing economy, but that alone doesn’t account for the expanded deficit. Spending increases do.
Tax hikes are cooked into the budget, including an increase to the “alternative minimum tax” which targets those deemed to be wealthy. Stock buybacks will be taxed, and dividends from financial institutions are to be taxed more. The funds raised by such taxes won’t put much of a dent in the deficit, and these kinds of targeted taxes usually don’t raise as much as projected due to their chilling effect on private-sector investments. They resonate well among NDP supporters, however, and the hikes were likely baked into the budget to ensure Singh’s continued support for the government.
On one bright note, the government did cap the rising liquor tax from an anticipated 6.4 percent to 2 percent. Those numbers may sound small, but they can make a world of difference for the beleaguered Canadian hospitality industry that operates on razor-thin profit margins already.
The budget bill claims that it will be making 3 percent cuts in all departments across the board, but is vague on how that will be done. The government expects to find nearly $4 billion in savings in 2023 and while one hopes for the best, the government hasn’t proven itself capable of realistically cutting spending so far.
The prime theme of the budget is providing relief for Canadians from inflation. A one-time increase in GST rebates for low-income Canadians is part of the budget. Aside from that, however, most citizens won’t be seeing any more money in their pockets from this budget. With spending increasing by $18 billion over 2022’s budget, the government will likely be contributing to further inflation. The continuing increase in the carbon tax will contribute to cost of living increases as well.
The biggest new line item is the $13 billion being dedicated to expanding a national dental plan to cover all families earning less than $90,000 per year. This spending wasn’t unexpected and was a key part of the agreement made between Prime Minister Justin Trudeau and Singh.
In the last fiscal update, the government had projected a budget surplus of $4.5 billion in 2027. The 2023 budget is now forecasting a $14 billion deficit for that year.
The spending trajectory of the federal government is unsustainable. We have been down this road before. Massive spending increases through the 1980s put Canada deeply in debt. In the 1990s it took years of austerity budgets before deficits were finally reined in. Meanwhile, countless billions of tax dollars were poured into debt interest payments.
As the debt continues to grow, debt servicing costs will climb along with it, especially as key interest rates continue to rise. In 2023, Canada will spend nearly $44 billion in interest on the debt. By 2027, that number will climb to $50 billion.
The Trudeau government is in a challenging position. They are embattled by the still-unfolding Chinese Communist Party influence scandal and don’t want to find themselves forced into an election right now. They are using the government chequebook to buy the NDP’s continued support for their minority government, thus the reason the budget looks more like something the NDP would have crafted than the Liberals themselves.
How long can this tenuous balance be maintained?
The Trudeau government has a bad habit of kicking tough problems down the road. The 2023 budget is in keeping with that governance tactic. Putting off tough choices tends to make small issues grow into big ones. Most people tend to learn that lesson in life, but governments have a harder time with it.
The Liberals must take control of themselves and their spending soon. Waiting won’t make it any easier, and Canadians can’t afford more NDP budgets.
Friends Read Free