For fiscal instruction, look Down Under

The Trudeau government has generally favoured relative comparisons of its performance (i.e., how we rate versus other countries) rather than historical comparisons. Recent data from the International Monetary Fund (IMF) indicate that, among 35 industrialized countries in 2020, Canada's economic and fiscal performance has been relatively poor.

For example, the IMF expects Canada (provincial and federal governments, combined) to accumulate more debt in 2020 than any other industrialized country — specifically, Canadian governments will borrow the equivalent of 19.9 per cent of GDP. This is almost half again as much as the average (9.3 per cent) for all 35 industrialized countries.

Part of why deficits rise in any recession is that government revenues fall in lockstep with the economy. But the COVID recession has also resulted in unprecedented spending by Canadian governments, mostly by Ottawa. Thus federal spending is expected to increase by 68.9 per cent in 2020-21, from $350.8 billion in 2019-20 to $592.6 billion in 2020-21.

As a result, the IMF expects Canada to have the sixth-largest government sector of any industrialized country, with all-government spending in 2020 expected to reach 57.3 per cent of our economy. Only France, Belgium, Finland, Italy and Austria rank higher than Canada. Tellingly, before the recession Canada ranked in the middle of the pack for size of government: in 2019 — just a year ago — we were 18th of 35 countries, with all-government spending representing just 41.2 per cent of our economy.

Part of the explanation for the big jump in government spending in Canada — again,

largely from Ottawa — is that the federal government consistently demonstrates a preference for expediency rather than effective, targeted assistance to Canadians in genuine need as a result of the COVID pandemic.

A recent study on which two of us were co-authors estimated that federal spending on recession-related initiatives may involve as much as $22.3 billion in poorly targeted assistance. The estimate included: up to $11.8 billion in Canada Emergency Response Benefit

(CERB) payments to nearly one million young people (aged 15 to 24) living at home with their parents (as dependents) in households with incomes of at least $100,000; up to $7.0 billion in CERB for spouses (secondary earners) in families with at least $100,000 in income; $1.6 billion in Canada Emergency Student Benefits (CESB) for students living in families (as dependents) with at least $100,000 in household income; and $1.4 billion in one-time payments to seniors whose income was high enough that they were ineligible for the Guaranteed Income Supplement (GIS), which goes only to low-income seniors.

Dramatically heightened, debt-financed spending by Canadian governments has not, however, translated into better economic results in 2020. Among the 35 advanced economies covered by the IMF report, Canada is expected to have the 11th worst economic contraction, at 7.1 per cent.

Canada's performance on unemployment is even worse, ranking fourth-highest of any industrialized country, with an expected rate of 9.7 per cent. Only Greece, Spain and Italy fare worse, and Canada's expected unemployment rate is well above the expected average for industrialized countries (7.2 per cent).

Australia is an interesting comparison with Canada because of its similar economy, history and culture. Australia's performance is markedly better than Canada's across the board. Among the 35 countries, it's expected to have the sixth smallest economic contraction in 2020. It ranks 12th in terms of all-government debt, with just over half the level of indebtedness in 2020 as Canada. And it remains a comparatively smaller-government country, ranking 27th for the size of its government spending relative to its economy.

The comparative data from the IMF for 2020 show Canada underperforming compared with other industrialized countries in terms of economic output, employment and government finances. Political and policy insights and lessons from countries that have been more successful than we have, such as Australia, should inform our governments on how best to proceed as they prepare their financial plans for 2021 and beyond.

$22.3 BILLION IN POORLY TARGETED ASSISTANCE.

GIORDANO CIAMPINI / THE CANADIAN PRESS Nearly $11.8 billion in CERB payments was made to one million young people living at home with their parents in households with incomes of at least $100,000, according to estimates in a recent study.