Trudeau’s very big budget gamble
It’s already too late to continue yammering on about the giant gamble the Trudeau government is taking with Canada’s financial future. The deal is done. The horse has left the barn. The die has been cast.
Sorry, that’s all the clichés I can think of off the top of my head. But the point is the same: no matter what you think of the Liberals’ decision to bet the farm on their ability to predict the future course of interest rates, and Canada’s ability to outrun them, there’s not much you can do about it now.
The amount of borrowing involved in Finance Minister Chrystia Freeland’s budget, added to the fantastical sums already borrowed by the government she serves, puts Canada on a path that can’t easily be changed.
Should the government survive long enough to put its plans into place, the federal debt will hit $1.4 trillion by 2026 (up from $615 billion when Justin Trudeau became prime minister), Canadians will be paying $40 billion a year just to finance it and Trudeau, according to Bloomberg News, will have borrowed more than all previous 22 prime ministers combined. All that is on top of the debt amassed by Canada’s provinces, some of which are already at perilous levels.
But, again, it’s too late to complain. It’s instructive that the finance minister blithely offered forecasts stretching five years into the future, on the apparent assumption that her Liberals will still be calling the shots between now and then.
Trudeau heads a minority government, remember. He’d need a new mandate to carry through on the avalanche of pledges in the budget, a document so unwieldy Freeland looked like she might topple over while lugging it down the aisle to her desk.
The document was clearly designed to provide that mandate — all spend, little tax — but should another party inherit the Liberals’ legacy, what are they going to do about it? Cancel the daycare pledge? Yank back the $18 billion promised to Indigenous communities? Renounce the tens of billions of dollars in giveaways to dozens of friendly voting groups? Fat chance.
Even if they did, much of the money has been pre-spent: $354 billion this year alone, and another $155 billion by this time next year. The meanest, most miserly successor regime in the world would have a tough time finding an answer to $500 billion in liabilities it didn’t create, other than closing a province or two.
So get used to it. For the most part, Canada’s punditocracy already has: by noon Tuesday, you had to scroll well down the main site of most news organizations to find any mention of the budget. Most were already back to stoking hysteria about the COVID-19 pandemic. For a time, the Toronto Star gave greater prominence to Patrick Marleau breaking Gordie Howe’s record for NHL games than it did to any budget stories.
After months of buildup, countless assessments of Freeland and what she might or might not unveil, interest in a document that could have a profound impact on millions of lives held the public’s attention for maybe 12 hours.
The Globe and Mail editorialized that, all in all, it wasn’t that bad. Could have been worse, given that there was no
mega-program of green subsidies or big tax hikes to siphon off money to pay for it all. Phew, that was close.
But what kind of government as skilled at public theatre as this one would kick in tax hikes just before an election it hopes will raise it to a majority? Should the flood of spending produce the desired victory, there will be plenty of time for the bad news afterwards, when the Liberals have been safely returned to power.
Trudeau and Freeland are gambling that the economy will grow fast enough, and interest rates will remain low enough, long enough for the government to meet the added costs of its borrowing. In effect, they have turned the country into the equivalent of a working family whose horizons extend only to covering the bills each month.
Surveys have found that almost 50 per cent of Canadians say they live paycheque to paycheque. If the bills don’t rise and no one loses their job, things are OK. When Freeland said her budget was “focused on middle-class Canadians,” most people probably thought she meant Ottawa would help raise families out of their struggles rather than lowering Ottawa’s outlook to meet theirs.
For Canadians whose ambitions extend beyond the next six to 12 months, it might be time to start preparing for the sort of things the budget is careful to sidestep: a raid on capital gains somewhere down the road, for instance, or an inheritance tax that penalizes families that have sought to build a bulwark for their children against the uncertainties of the future.
Would it surprise anyone if Ottawa, after introducing programs enabling people to prepare for retirement, decided that demanding “the rich pay their fair share” now includes clawing back a bigger share of those savings? Or that a government that constantly brags about its “investments” increasingly treats private investments as a handy means of extracting revenue to pay its own bills?
It may not happen. All the Liberal government’s forecasts may come true, with no external shocks to unsettle its calculations. No pandemics, no bursting bubbles, no geopolitical earthquakes. It’s possible. But if you believed the prime minister when he declared — five years ago this month — that “the budget will balance itself” and deficits would last no more than three years, you might want to reconsider your level of faith.
THE SHEER AMOUNT OF BORROWING PUTS US ON AN UNALTERABLE PATH.