National Post (Latest Edition)
On Trudeau’s fiscal Titanic, they’ve been loading up on deck chairs
At a time of extraordinary economic peril, Canada finds itself led by a profligate government with a weak electoral mandate. The problem is exacerbated by the prime minister’s fixation on personal and partisan advantage rather than adherence to parliamentary accountability. To top it off, his minority reign may last several more years if he concedes to opposition demands for yet more spending.
It is immense good fortune when a strong leader emerges at a time of national economic challenge — Margaret Thatcher, “the woman who saved Britain,” Ronald Reagan, who ended the 1980s recession, and, yes, Stephen Harper, who skilfully steered Canada through the worst global recession since the Great Depression. Too often, nations have to settle for middling competence to see them through. But a country saddled with a leader determined to make a dangerous problem even worse can get itself into terrible trouble.
We do not have the details yet but it is more than obvious that extravagant spending will be the hallmark of the forthcoming federal budget, rather than a focus on growth and just a modicum of restraint. The very low interest rates currently cushioning debt service costs seem to have blinded the Liberals to the risks of massive debts. But low rates now do not preclude credit downgrades, a compromised ability to access capital or an eventual market-wide rise in rates.
This creates a big longterm problem. According to the Fraser Institute, because of population aging and continuing high spending the federal government will not balance its budget any time over the next three decades. A prime minister who, when the subject is climate, worries constantly about our children and their children, is evidently indifferent to the impact on these coming generations of the massive debts his government is piling up.
The Liberals garnered only one- third of all votes cast in the past election and 220,499 fewer than the Conservatives. With turnout at 67 per cent, that means only 22 per cent of Canadians voted Liberal. Justin Trudeau clearly did not receive a mandate for massive change. And using the COVID- 19 pandemic as a pretext to avoid parliamentary accountability was a shameful subversion of democracy.
Fourth- place election finisher, NDP Leader Jagmeet Singh, has said he may support the Liberals for the remaining three years of their mandate provided certain of his ideas are adopted, including paid sick leave and an extension of the CERB for furloughed workers. The Liberals, ever devoted to survival, are eager to comply. What could possibly go wrong? Well, a U.S. rating agency has the answer to that.
Last Friday, Fitch Ratings launched its third warning volley at the Liberal Titanic as it sails headlong toward its rendezvous with the fiscal iceberg. Like Leonardo Dicaprio in the eponymous Oscar- winning movie, Justin Trudeau stands at the ship’s bow as the wind blows through his flowing locks and shouts, “I’m the king of the world! Woo hoo hoo!” Not for long, maybe. (Speaking of Dicaprio and wind, Westerners will never forget the visit on which he confused a Calgary chinook with the “terrifying” effects of climate change.)
Fitch, which had earlier downgraded Canada bonds from “AAA,” warned that promises in the throne speech will raise the deficit and debt beyond its June estimates and that the debt-to-GDP ratio is already significantly higher than the median of its “Aa”-rated peers.
Moreover, “failure to set clear post- pandemic fiscal anchors and reduce the federal deficit to sustainable levels after the public health crisis could renew negative ratings pressure” — in other words, a debt downgrade. The latest additions to spending and debt are the extension of the Canada
Emergency Wage Subsidy through to summer 2021, increases to small business emergency financing, longterm childcare support, a national pharmacare program and public investments to create green jobs and infrastructure.
Fitch estimates the federal deficit will reach $ 380 billion ( 17 per cent of GDP), up from the government’s estimate of $ 343 billion. It is a sign of the times that a whopping increase of $ 37 billion received virtually no media attention, yet these deficits are unprecedented by postwar standards. Consolidated gross general government debt ( federal and provincial combined) will be 20 per cent greater than the economy.
Large structural deficits are exceptionally difficult to deal with politically, especially when new programs are partnered with provincial governments ( such as childcare or pharmacare).
Fitch remarked dryly that there was no mention of offsetting revenue increases, “though taxing wealthy Canadians and large digital service companies were noted as possibilities.”
That could mean a wealth tax (a NDP favourite), an increase in the capital gains inclusion rate or succession duties. Hikes may not be confined to the megawealthy, but could extend to the upper- middle class and beyond in the form of income bracket increases, GST or carbon tax hikes and on and on.
We may have to endure the ultimate fiscal nightmare for years — a spendthrift minority Liberal government dependent on an NDP that wants to tax and spend even more. There is no way that can end well.
Joe Oliver served as minister of finance in 2014- 2015.