Deficits not helpful
Last fall, the federal government released an economic update presented by the Finance Minister, the Honourable Chrystia Freeland.
It is not unusual for a finance minister to promote a budget or budget update; it is expected.
However, two aspects of this budget update stood out to me. The first was that the Liberal government expressed hope to achieve a balanced budget by the 2027/2028 fiscal period.
This stood out because, until now, Prime Minister Trudeau has not tried to balance the budget. He is known for once stating that “the budget will balance itself.”
The following comment from the finance minister in the second part of this budget update also struck me.
The minister stated, “As the Bank of Canada fights inflation, we will not make its job harder.”
This comment is significant because it is the first time a minister from the Trudeau Liberal Government has publicly acknowledged that their deficit-related spending contributes to increased inflation.
As many struggling families know, when the Bank of Canada raises interest rates, it creates severe financial hardship in many households.
This problem has become so severe that recent news reports have highlighted situations where seniors on fixed incomes are forced to sell their homes because they can no longer afford the payments. What’s worse is that many seniors have nowhere else to go.
Since the last fall fiscal update, the Trudeau Liberals have entirely abandoned any fiscal plans to reduce spending or balance the budget in the future.
One challenge for the minority Liberal Government is that it entered into an agreement with the NDP to gain political support. In exchange, they committed to implementing NDP programs involving significant federal government spending expenditures.
The Governor of the Bank of Canada, Tiff Macklem, addressed this additional government spending, saying; “”For next year, we expect government spending to grow at about 2.5%. If all those spending plans are realized, government spending will be adding to demand more than supply is growing and in an environment where we’re trying to moderate spending and get inflation down, that’s not helpful.”
Unfortunately, most of this spending is funded by borrowing, which increases our deficit. Consequently, the debt also increases, and with higher interest rates, the government faces higher borrowing costs related to the debt.
This year, the March budget initially projected that debt servicing would reach $43.9 billion and increase to $50.3 billion by 2027.
As some have observed, while interest rates have increased since March, debt servicing costs have also increased.
When asked this question at a recent Parliamentary Committee meeting, the Assistant Deputy Finance Minister stated: “At present, we do not have a revised estimate for public debt charges in 2023.”
This is a significant concern because the federal government is nearing the point where it will spend as much on servicing the debt as it does on the Canada health transfer, which amounts to $49.3 billion.
Meanwhile, the NDP persists in calling for additional programs that will only contribute to further unsustainable spending.
This leads to my question for this week: Is the NDP-Liberal support deal in Ottawa serving Canada well? Why or why not?
I can be reached at Dan.Albas@parl.gc.ca or call toll-free at 1-800-665-8711.