Trudeau's wonderland fuelled by budget fantasy

In Alice's Adventures in Wonderland, the Queen of Hearts is synonymous with the idea of arbitrary justice. “Sentence first; verdict afterward,” she pronounced.

The concern among some senior public servants is that Finance Minister Chrystia Freeland has used Lewis Carroll's fantasy novel as inspiration for her first budget. Spend first; specify objectives, with measurable metrics to guide performance afterward.

Nearly a month after the “recovery plan for jobs, growth and resilience” was unveiled, it is becoming the target for resounding criticism from people who have been involved in preparing previous budgets, some of whom say it is more focused on the political fortunes of the Liberal Party than on rebuilding the economy post-pandemic.

Freeland appeared at finance committee on Tuesday, where she said that she is “very confident that the budget is reasonable and sustainable.”

Conservative finance critic Ed Fast quoted a number of prominent economists, including former Bank of Canada governors Mark Carney and David Dodge; former Liberal adviser Robert Asselin; and former clerk of the Privy Council Kevin Lynch, who said the “intergenerational transfer of debt and risk is unprecedented.”

In the Financial Post on Tuesday, Lynch and co-author Paul Deegan did not spare Freeland's blushes. “As a political statement, it should yield electoral dividends. As an economic statement, it favours short-term consumption over private sector investment, sprinkles spending initiatives far and wide, adds heavily to federal debt, and misses an urgent opportunity to rebuild our longer-term growth post pandemic,” they wrote.

Fast said he worries the largest spending budget ever will create a financial burden that will undermine the prospects of the future generations to live the Canadian dream.

He said that, while the budget includes better growth prospects and higher revenues over the next two years than were forecast in the fall fiscal update, the government intends to spend all those additional revenues and increase the amount of borrowing. “We're going backward, big-time,” he said.

Freeland said she disagreed strongly with all of Fast's contentions. She pointed to declining debtto-GDP ratio and deficits after this year, as well as the reaffirmation of Canada's triple-A credit rating by Standard & Poor's rating agency as evidence the outlook is stable. “It really doesn't get any better than that,” she said.

But the criticism from those who know budgets is growing to include people inside the bureaucracy.

Some public servants say they are surprised to find themselves being asked to come up with policy objectives, and the means of achieving those targets, for measures costing hundreds of millions of dollars that have already been announced.

While the bureaucracy is typically charged with refining partially-cooked proposals, there is grumbling at senior levels about the lack of due diligence in this document. People with prior experience crafting budgets say ideas are generally pretty well scrubbed by finance department officials before they make it into the final draft.

The process generally starts in the fall, with formal departmental spending requests landing on the desk of the finance minister, which are then sifted early in the new year.

This year, senior bureaucrats said they were surprised at the amount of weight given to pre-budget submissions by stakeholder groups.

The Canadian Centre for Policy Alternatives has become the favoured thinktank for the Trudeau government and many of its recommendations were adopted wholesale, including early learning and childcare and student aid packages.

CCPA also provides ballast for Freeland's macroeconomic outlook. David Macdonald, its senior economist, advised her to ignore “ongoing and needless concern about federal interest payments.”

Other groups who did well in the budget included the Canadian Alliance for Student Associations, the Canadian Live Music Association, Farmers for Climate Action and CanAge, the national seniors organization.

The Assembly of First Nations attributed the $18 billion in the budget for Indigenous people down to its “sustained advocacy.”

The $100 million earmarked for rebates to farmers from the carbon tax was typical of many budgetary measures. “Further details will be announced later in 2021 by the minister of finance,” the budget said.

Stakeholder groups are always a factor in budget decisions but there can have been few years in which wish-lists were quite as extensively fulfilled as this one. “There was something under the tree for everyone,” said one public servant.

It is no coincidence that the Liberal Party would like to extract votes from each of these electoral groups.

Budget policy usually follows a defined sequence, which starts with specifying the objective. What problem are you trying to solve? Those objectives should be tightly related to funding decisions. Then metrics are created to determine whether the policy is a success of failure.

It is not clear that the usual defined sequence was followed as rigorously as in previous years.

There are programs with objectives that are clearly laid out. The $470 million over three years earmarked for the Apprenticeship Service, for example, is aimed at helping 55,000 apprentices in the construction industry and trades. Employers will receive $5,000 per apprentice, to help pay for salaries and training — $10,000 if the applicant is from an “under-represented” group, including women.

Who knows if those numbers are realistic, but at least they are made public.

Much of the rest of the budget follows the haphazard style of the government's $912 million solesourced contract to WE Charity to administer the Canada Student Services Grant. In that case, the government received an unsolicited proposal from WE on March 6, 2020; opened negotiations with the charity a month later; and on April 22, the prime minister announced a $9 billion package of student aid, including the WE contract. It was left to the bureaucracy to flesh out the contents of the program.

That is in keeping with the modus operandi of this government since day one. As one senior Liberal staffer put it, Justin Trudeau is much more about “what's new?”

“He's good at getting people super-excited, setting bold visions. But it creates real challenges in execution,” he said.

There is no room when setting bold visions for consideration of opportunity costs, risks or implementation issues.

The imperative in this case, arguably, was to spend as much as it required to get the Liberal Party re-elected with a majority.

The view of many economists, including the Parliamentary Budget Officer, Yves Giroux, is that the level of spending is higher than is necessary to repair the economic damage caused by the pandemic.

The consequence is a public service scuttling to pull together Treasury Board submissions before the summer, so that they have a reasonable prospect of being approved before Christmas.

The whole process has the prudence of Alice's response after watching the White Rabbit disappear down his hole. “In another moment, Alice went after it, never once considering how in the world she was to get out again.”