FUSS: Next week’s Trudeau budget will answer critical questions about Canada’s future

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When Treasury Secretary Chrystia Freeland presents the federal budget next week, Canadians will have answers to some pressing questions.

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First, what will happen to federal spending?

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Since taking office in 2015, the Trudeau administration has increased its spending significantly every year, exceeding its own spending forecasts almost everywhere. Prime Minister Justin Trudeau is responsible for the five highest federal expenditures per person (excluding interest costs) in Canadian history between 2018 and 2022. Inflation-adjusted spending is about 24% higher today than it was at the government’s first election in 2015.

Of course, the amount of money spent each year by the federal government denotes the portion of the country’s available resources that is being consumed by Ottawa rather than being available to Canadian families, entrepreneurs and businesses. This is one of the reasons why it is imperative that the federal government handle its spending in the coming budget more responsibly.

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In addition, Ottawa must not fuel inflation any further. If the federal government increases spending this spring, Ottawa will make it harder for the Bank of Canada to fight inflation and potentially result in interest rates being higher than they otherwise would be. Secretary Freeland acknowledged this, saying it was inadvisable for governments to “put fuel on the fire of inflation”. However, based on this administration’s track record of spending, it is unlikely that it will heed its own advice.

Another emerging question is whether the government will commit to a balanced budget before the end of its current term in 2025?

The Trudeau government is on track to run eight straight deficits, despite earlier promises to return to black ink by 2019. As a result, public debt (total debt minus assets) as a share of the economy rose from 31.9% in 2015 to 45.2% in 2021. In its latest fall fiscal update, the government outlined a plan to run four more deficits and included an unfavorable target to return to balanced budgets by 2027, recent healthcare funding announcements, campaign commitments still to be met, and the launch of new programs such as National Pharmacare, which were not included in the projections.

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Finally, what will the government do to improve economic performance?

A study by the Organization for Economic Co-operation and Development (OECD) showed that Canada is projected to rank last among 32 advanced countries in growth in GDP per person (adjusted for inflation) in both 2020-2030 and 2030-2060. As strong economic growth is the path to higher living standards for Canadians, these forecasts should set alarm bells ringing in Ottawa. Other economic challenges include an aging population, declining business investment, high inflation and a potential recession. And the country’s tax rates on business and personal income are significantly uncompetitive compared to other countries, making it difficult for us to attract and retain high-quality workers and entrepreneurs. Solutions to address these challenges and restore strong economic growth must be a prominent centerpiece of the upcoming federal budget.

So how will next week’s federal budget deal with rising government spending and debt and a weak economic outlook?

If it’s more of the same, we probably won’t resolve anything and economic conditions in the country could deteriorate.

Jake Fuss is Associate Director of Financial Studies at the Fraser Institute.