Big Spending Is a Big Mistake for Canada

Big Spending Is a Big Mistake for Canada
People walk past closed restaurants and bars in Old Montreal on June 4, 2020. (The Canadian Press/Ryan Remiorz)
Fergus Hodgson

As Canadians await an “ambitious green agenda” from their prime minister, scheduled for a Sept. 23 announcement, there’s not a hint about what the country needs for a revival.

Ottawa has said plenty about gender equity, green energy, a generous safety net, and increased spending on schools and child care. Will any of this raise economic output, the key shortcoming crippling the country’s employment and fiscal health?

The question answers itself.

The Key Ingredients

For a meaningful recovery, Canada needs two things: opening of the economy and fiscal restraint.
People need to be able to open their businesses and get back to work, and that includes trade and tourism. Someone has to pay the taxes, and printing money to pay the bills—albeit disguised by Bank of Canada gobbledygook—is no substitute for honest production.
The simplest and most sensible way to streamline recovery would be to open trade between the provinces. Goods should be able to move freely, as espoused by the Canadian Constitution Foundation, which notes an annual forgone of $50–130 billion as low-hanging fruit. Alberta Premier Jason Kenney also has the right idea with his proposal to recognize credentials in regulated professions such as law and nursing from other provinces, so people can come and accept employment without meaningless bureaucratic hindrances.

While fears remain regarding the spread of COVID-19, evidence continues to mount that the virus is only dangerous to a small fraction of the population. Broad-based shutdowns have generated a self-made, catastrophic depression, and autocratic mandates must take a back seat to prudent, tailored mitigation.

Further, grand schemes of profligate spending must stop, lest they derail business confidence and inflict more permanent damage through reduced investment. Even prior to the pandemic, Canadian competitiveness was sagging. Foreign-direct investment was abandoning Canada, while Canadians themselves were placing more of their own money abroad.
Now even the parliamentary budget officer is warning the unprecedented deficit is simply unsustainable, as the national debt is rapidly approaching $1 trillion. His warning comes on the back of a June credit downgrade from Fitch Ratings, which reflects the deterioration of Canada’s public finances and declining investment attractiveness versus her southern neighbour:

“The higher deficit is largely driven by public spending to counteract a sharp fall in output as parts of the economy were shuttered to contain the spread of the coronavirus,” the downgrade reads. “Net outflows of equity FDI partially reflect competitiveness challenges relative to the U.S. market.”

As Stephen Moore of the Heritage Foundation recently wrote, paying people to stay home and remain idle is not stimulus. Research compiled by the Fraser Institute demonstrates how wasteful and counterproductive prevailing crisis measures have been.

More than a quarter of emergency transfers, for example, have gone to households with incomes greater than $100,000. Nearly 1 million people are earning more from federal transfers during the crisis than they were making on their own in 2019.

To increase spending in this environment would be the epitome of fiscal irresponsibility. It would also be a sure-fire way to exacerbate the crony economy—with many more humiliations akin to Bombardier, the Montreal-based corporate-welfare scheme disguised as a transportation manufacturer.

Worse, deficits assure tax burdens for generations not yet able to defend themselves. Such exploitation is taxation without representation, since it is for short-term and operational measures rather than infrastructure. Those picking up the future tab will pay for something for which they derive no benefit.

The average Canadian family spends more on taxes—42 percent of income—than all basic necessities combined. That level has far outpaced inflation in recent decades, and it cannot withstand jurisdictional competition from the United States and countless other countries battling for talent and capital.

The Ratchet Effect

One need not read between the lines to see what is motivating lawmakers as they prepare for the Sept. 23 announcement. Unfortunately, it is not a simple economic rebound. “Never let a crisis go to waste” is the relevant adage.

Social engineers are using the crisis as an excuse to expand their powers for all manner of dangerous and unsustainable schemes. What they propose has nothing to do with economic recovery and everything to do with remaking Canada to fit their utopian visions. These pie-in-the-sky policies necessitate centralized power in Ottawa, in contrast to Canada’s healthy tradition of decentralization with the provinces and municipalities.

We have already witnessed the surveillance state go into hyperdrive amid the pandemic. Now we face the threat of the welfare and regulatory states doing the same. Even if constituents might be willing to forgive that during the crisis, the painful reality is that such policies hang around even after the crisis subsides.
That was the finding of Robert Higgs in his 1987 classic, “Crisis and Leviathan”; government grows most during crises, so that is precisely when we need to guard our liberties and resist encroachment. This pattern stands regardless of partisan affinities.

A Defining Moment

With Parliament prorogued for a month, Canadians have a period to consider their future. The upcoming rollout of the revival agenda means history is taking place before our eyes. Will Canadians embrace the Soviet-style central planning of Eastern Europe, or will they preserve their British common-law history of private property, laissez faire, and respect for individual sovereignty?

All indicators suggest an agenda heavy on social engineering and centralization and light on growth. Like so many political promises, though, it will be hollow. What cannot happen will not happen, and Canada simply doesn’t have the tax-revenue capacity to sustain an even more outlandish and arbitrary welfare state. All that can come of grandiose socialist ideas is more indebtedness and a permanent reduction to living standards.

Fergus Hodgson is the director of Econ Americas, a financial consultancy, and a research associate with the Frontier Centre for Public Policy.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Fergus Hodgson is the director of “ Econ Americas”, a financial consultancy, and publisher of the “ Impunity Observer” , a geopolitical intelligence service. He is the author of “ Financial Sovereignty for Canadians: Untether Yourself from the Ottawa Leviathan (2024).”
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