FEDERAL COFFERS TOOK IN AN EXTRA $20 BILLION IN 2017-18, HALF OF IT FROM INCOME TAX HIKES. INSTEAD OF PAYING DOWN THE DEBT, THE TRUDEAU LIBERALS BLEW IT ALL.

With a recession looming, why fritter $20B?

The Economist this week warns policy-makers to “start preparing for the next recession” while they still can. The release of the Government of Canada’s annual financial report for the 201718 fiscal year, however, suggests the Trudeau Liberals have no notion of forgoing that most enjoyable of all entitlements: spending other people’s money.

The annual budget is an aspirational document, revealing what the government would like to do. But the annual report is a look in the rear-view mirror at what it did in the year ending March 31, 2018.

This year is complicated by a restatement of the public finances going back years to factor in an accounting change. (The auditor general ordered the restatement, related to discounted and unfunded pension obligations, and it adds an additional $20 billion to the federal debt, which now stands at $671 billion.) But the story is relatively simple — 2017-18 was a bumper year for government revenues, which rose by $20 billion, or 6.9 per cent, from the previous year.

Personal income tax increases accounted for half of that flood of new money coming into the coffers, around half of which was related to economic growth and the other half to the unwinding of tax planning that had suppressed revenues in 2016-17 (when the Liberals announced they were going to raise the top rate of income tax to 33 per cent in late 2015, there was a rush of filing by high-income earners to declare income at the lower rate).

Yet, rather than reduce the deficit and pay down debt in preparation for the next recession, creeping toward them as inevitably as mortality, the Liberals spent the lot. In 2017-18 expenses amounted to $332.6 billion — breaching the $300-billion mark for the second time — up $20.1 billion, or 6.4 per cent from 2016-17.

A strong labour market meant Employment Insurance payments fell by $1 billion but the government more than made up for that windfall by increasing spending on elderly benefits ($2.5 billion more on Old Age Security and Guaranteed Income Supplement) and children’s benefits ($1.4 billion more).

Transfer payments to departments and agencies for things like early learning, infrastructure and First Nations increased by $5.6 billion, or 13.4 per cent, while other direct program expenses for claims and litigation, higher defence spending and veterans benefits rose $9.2 billion, or 10.2 per cent.

All that is on top of the six per cent increase recorded year-on-year in 2016-17.

The government will cling to its “fiscal anchor” crutch — that, despite an extra $20 billion in public debt, growth in the economy means the debt-to-GDP ratio is still on a downward track. But this government’s Achilles heel is that it is prepared to keep spending with borrowed money.

An opinion poll the Angus Reid Institute published last week asked people who would consider voting Liberal at the next election whether they agreed or disagreed with the government running deficits this year and next, rather than offering the balanced budget Justin Trudeau promised in 2015 he’d deliver those years. Four in 10 disagreed — and, to repeat, those are people who consider themselves “likely” or “maybe” Liberal voters.

“The takeaway is that I think Team Trudeau may be misinterpreting the licence for ‘modest, short-term’ deficits as a tolerance for bigger, longer ones, at their peril,” said Aaron Wudrick, federal director of the Canadian Taxpayers Federation.

Yet running deficits twice the size as promised, with no plan to return to balance, and no sign that spending is being reined in, is a recipe for future disaster. History suggests recessions come along every eight years or so — and we are overdue. The recent jitters in the stock market over slower growth and tighter U.S. monetary policy may well foreshadow tougher times ahead.

The Federal Reserve has raised interest rates eight times since December 2010, which has strengthened the greenback and squeezed emerging markets. There is limited room in Canada, or anywhere else, to fight a downturn with reduced rates, which means even more government spending would be the weapon of choice.

Canada may have the lowest net government debt level in the G7, but the economic surge revealed in the latest annual report suggests it could easily have been lower still. Winter is coming, and Trudeau’s Liberals are ill-prepared.