National Post (National Edition)
Our deepening f iscal crisis
Back in May, at the height of the first wave of the pandemic, we asked if the Trudeau Liberals would follow in the footsteps of former prime minister Jean Chrétien and finance minister Paul Martin and “do what needs to be done to stabilize this country's finances, retaining the prosperity that sustains our way of life and preserving it for future generations?” Following this week's speech from the throne, we have our answer: a resounding no.
When we posed that question four months ago, the devastation to this country's finances wrought by the coronavirus was just starting to come into view. The Parliamentary Budget Officer (PBO) had estimated that the federal deficit would hit $252.1 billion in the 202021 fiscal year and a National Bank Financial report warned that combined federal and provincial deficits could reach $350 billion.
Oh how naive we were. Those numbers almost seem petty in the face of the federal government's current $343-billion deficit. And that number doesn't include all the spending promises the Liberals made in the throne speech.
Of course, the throne speech is no more than a wish list of things the government would like to do, but may never get the chance to. And given that the minority government could fall as early as next week, and that much of the pledges made in Wednesday's speech were recycled from previous Liberal election platforms, they could end up being repurposed once again into a new Liberal “Red Book.”
But if the NDP gets its way, and it's looking increasingly likely that it will, the Grits will have to double down on their reckless spending. The government has already introduced a bill that will ensure jobless benefits remain at $500 a week, up from the initial proposal of $400, and includes new sick leave benefits — two items that NDP Leader Jagmeet Singh said would be necessary to secure his party's support.
From a fiscal perspective, there would be nothing worse than the New Democrats pushing our already free-spending government even further to the left. And although the throne speech did not go as far as many Liberal insiders initially suggested it would, it was peppered with a whole host of big-ticket items that, taken together, would plunge the treasury into very dangerous territory.
In a report following the speech, economists at BMO Economics estimated that “other measures such as the modified EI program and new Canada Recovery Benefit should tack on more than $30 billion” to the deficit, raising it to upwards of $375 billion by year end. But the real question, they argue, is how the federal balance sheet will look next year. Given the throne speech's spending announcements, BMO estimates the deficit could still be in the $200-billion range, even if revenues rebound.
These are levels that Parliamentary Budget Officer Yves Giroux warned could be sustained for only a year or two. And much depends on what ends up being required to fight the second wave of the pandemic, which may once again see massive expenditures of public money to keep the economy afloat and Canadians from going hungry, as well as how many of its big-ticket proposals the government is actually able to enact.
While the laundry list of items in the throne speech has not been costed, we can assign a price tag to some of them.
For example, the Liberals promised to press ahead with their goal to institute universal pharmacare. While the language in the speech was somewhat couched on this point — pledging to “accelerate steps to achieve this system” and to work “with provinces and territories willing to move forward without delay” — the PBO's costing of the NDP's universal drug coverage plan from the 2019 election said it would cost over $10 billion a year for the first three years, rising to $13.8 billion a year by the end of the decade.
The Governor General also said the government “will make a significant, longterm, sustained investment to create a Canada-wide early learning and childcare system.” If that were modelled off of Quebec's universal daycare program, economists at Scotiabank estimate it would cost the feds an additional $11.5 billion a year.
And that's just the start. If Prime Minister Justin Trudeau gets his way, he will spend huge sums of money on infrastructure, public transit, green retrofits, rural broadband, affordable housing and airline subsidies. He would make the “largest investment in Canadian history in training for workers,” and decarbonize the economy. But at what cost?
Canada's debt-to-GDP ratio is already approaching 50 per cent, not too far off from the 67 per cent we were sitting at the last time a Liberal government had to institute drastic austerity measures to avoid a debt crisis. It's clear that the Trudeau Liberals are not the prudent fiscal managers Canada needs to get it through the current health crisis and avoid a fiscal crisis down the road. The only question is how long it will take to get a government that is.