Can anyone trust Ottawa on budget?
Back when baby boomers were actually babies, there was a popular TV game show (hosted by Johnny Carson before he went on to bigger things) called “Who Do You Trust?”
Consider these news items and ask yourself that question:
❚ Canada’s premiers will gather in Ottawa on Feb. 7 in hopes of securing the Trudeau government’s agreement to pour billions more dollars into health care than is already poured.
❚ Finance Minister Chrystia Freeland says her spring budget will focus on health care and the Liberals’ inevitable green fixation, but that she recognizes “there is a lot of uncertainty in the world,” and that, “If there’s less fiscal room, you can do less,” and “that means we do need to continue to take a fiscally prudent approach.”
❚ Three eminently qualified people with first-hand experience and no political axes to grind have issued a report that barely contains their laughter at the idea that Prime Minister Justin Trudeau’s government has ever been prudent.
So who do you trust: the finance minister who has regularly spoken of caution, prudence and red lines while waving through massive spending increases; the premiers, who have obviously been led to believe a new flood of money is in the offing; or the three greybeards who have seen it all before and doubt Ottawa is on the right track?
The greybeards are David Dodge, who was deputy minister to Paul Martin when the former finance minister took on Canada’s 1990s budget crisis; Robert Asselin, budget director to former finance minister Bill Morneau and adviser to two Liberal prime ministers, and Richard Dion, a 30-year veteran of the Bank of Canada.
Using government figures, they conclude there is “a high risk that the government will not be able to deliver the services it promised Canadians in Budget 2022” at the spending levels promised by Freeland. Instead, a more “realistic” scenario suggests $60 billion or more in additional spending would be needed, meaning greater interest costs, more borrowing and a worsening debt situation.
Even then, Ottawa would likely find itself short of cash for other policy goals, such as better health care, improved infrastructure and its pursuit of a low-carbon economy. And that’s before mentioning the possibility of a recession and ongoing supply issues.
It’s not necessary to have credentials like Dodge et al. to suspect they know whereof they speak. Canada is under intense pressure to match the massive subsidies rolled out in U.S. President Joe Biden’s Inflation Reduction Act. The war in Ukraine has dramatically upped the need for Ottawa to quit starving the military and finally provide the means to present a moderately respectable presence in an increasingly unsettled world.
And need we mention that the Liberals are locked into a deal under which the New Democratic Party demands big new programs at a regular rate — dental care, pharmacare, who knows what next — in return for helping Trudeau avoid another election.
While Trudeau aides and admirers are prone to dismissing such qualms as the bleating of cranks and lesser Canadians, the latest duel over debt in Washington, D.C., demonstrates just what you get when wilful blindness becomes official policy. Republicans in Congress are in a high-stakes battle with the White House over the U.S. debt ceiling, which is already frightening and requires regular increases as successive administrations ignore its intent.
Based on population (333 million versus 38 million) and debt levels (US$31 trillion versus C$1.3 trillion), Washington has borrowed more than 2.5 times as much per person as Ottawa. That might convince Liberals they have lots more room to rack up debt before the crisis hits, but borrowing to the point of collapse isn’t generally considered sound financial policy.
According to one analysis, to reach balance within a decade, Washington would have to cut all spending by 25 per cent. If the most sacred programs were omitted — defence, veterans, social security and medicare — the rest would have to be slashed by 85 per cent. Not going to happen, right? Especially as the current administration is on track to add another $2.4 trillion to the pile.
The U.S. economy is far bigger, more dynamic, more agile and much more productive than Canada’s, which ranks dead last out of 38 OECD countries in productivity. It’s better equipped than we are to deal with irresponsible economics. Yet U.S. Treasury Secretary Janet Yellen warns it faces a “catastrophe” if the debt ceiling isn’t raised yet again, and is already taking emergency measures to avoid a collapse while the White House and newly energized Republicans engage in a contest to see who blinks first.
They will inevitably reach a deal, at some complicated price, enabling the economy to stumble along a few more years without serious measures being taken unless outside events force it on them: a 2008-style meltdown, another pandemic, a war with China. Is that something Canada is keen to emulate, a future of biting our nails and hoping nothing goes wrong?
“This is a once-in-a-generation moment,” Freeland maintains, “and either Canada seizes that opportunity, seizes our share of the new industrial global economy which is being built, or we get left behind.”
She’s right on that. The question is whether she still believes the way to get there lies in writing more cheques for borrowed money. Trust not being in big supply at the moment, is there any reason to trust that this government will adopt budget prudence now, when it has shown no inclination to do so in the past?