Tuesday, March 21, 2023
No Result
View All Result
  • Media
Support Us
Macdonald-Laurier Institute
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
No Result
View All Result
Macdonald-Laurier Institute

Expect more broken promises in federal budget as spending grows faster than economy: Jack Mintz in the Financial Post

March 9, 2020
in Columns, Domestic Policy Program, Economic policy, In the Media, Jack Mintz, Latest News
Reading Time: 4 mins read
A A

It was wrong to push up deficits during good times, which now hangs as a massive weight on the Trudeau government’s fiscal neck, writes Jack Mintz. 

By Jack Mintz, March 9, 2020

The good ship “Federal Budget” looks like it is about to hit the rocks. Expect a broken promise as the federal debt/GDP ratio rises with moribund growth in the first half of 2020.

What could also happen is something that we have not seen for some time: federal program spending outstripping revenues. This is called the primary (or operational) deficit when a government not only can’t cover debt interest payments (totalling $23.9 billion in 2018/9) but also its program expenses.

A primary deficit has not appeared since the fiscal years 2009/10 and 2010/11 when a severe global financial recession took place. For two decades prior to 2009, we had only federal primary surpluses. Even in the latter Mulroney years with a deep 1990-91 recession, Canada ran a primary surplus. The real story was profligate spending during the Pierre Trudeau years resulting in a string of primary deficits starting in 1975/76 for over 12 years, even during robust growth years.

The Pierre Trudeau years from 1975-84 were the worst with primary deficits accumulating to $900 billion (indexed to 2019 values at the government bond rate for comparability). The Chrétien years saw enormous surpluses to break the back of the debt crisis when Canada had difficulty selling its bonds to the international market.

In 2016/7 and 2017/8, Canada skirted close to the line with its primary surplus almost disappearing. The primary surplus did widen in 2018/9, reaching over $9 billion, but this cushion was only 0.3 per cent of total revenues. It would not take much of a swing for the primary deficit to reappear.

And this looks to happen in 2020. Canada’s 2019 GDP growth rate was 1.6 per cent but barely squeaked out any growth in the last quarter (0.1 per cent). With the transportation blockades, the economy in the first quarter is expected to be flatlined. Now a potential global recession is imminent with a global growth rate at less than the IMF threshold of 2.5 per cent in the wake of a contraction in the Chinese economy. Should the coronavirus become more prevalent in Europe and North America, Canada can expect a major downturn, too.

Many economists have forewarned that the federal government should ensure it has enough gunpowder for the next downturn by running surpluses in the good years. This lesson was learned when fiscal policy got out of hand in the 1970s and 1980s with general government gross debt (including provincial and municipal debt on a national accounts basis) eventually peaking at over 100 per cent of GDP in 1995/6. Today, general government gross debt is now almost 90 per cent of GDP, 20 points higher than 2007, the year before our last recession. Federal liabilities add up to close to $1.2 trillion (net financial debt is $772 billion). Almost 30 per cent of federal debt is held by non-residents, even more so than mid-1990s when Canadian bonds almost became junk bonds.

The return of the 1970s may already be upon us. Federal program spending has been growing faster than the economy, rising from 12.8 per cent in 2014/15 to 14.6 per cent of GDP in 2018/19. If spending grows faster than tax revenues in the coming few years, the deficit and debt will expand relative to the size of economy. The minority government has promised a climate change budget that you can bet will mean more subsidies for electric vehicles, renewable power and energy efficiency. Pressures to spend more on defence, Pharmacare, a UN security council seat, transfers to provinces and to fulfill other election promises will grease the wheels further.

So, if the federal government is to keep the debt/GDP promise intact, it will need to raise taxes. However, one already-adopted election promise — expanding the personal tax exemption — will cost $3 billion in 2020/21. As for tax increases, potential revenue increases will be more modest including a digital tax on large technology companies (likely to attract U.S. retaliation), a property tax on housing held by non-residents, GST on digital sales (Netflix tax), a limit on corporate interest deductions and full taxation of stock options (with most of the revenue offset by an employer deduction for option costs). The big one would be an increase in the capital gains tax paid by individuals, trusts and corporations that could yield roughly $11 billion federally, although this does not reflect the current stock market rout.

Raising taxes when the economy is at risk is a singularly bad idea. Non-residential investment is declining. Household consumption is holding up but that may weaken soon if employment stalls due to a global slowdown and lower commodity prices. Tax hikes simply sap further private sector confidence.

The likely result, therefore, is for the Trudeau government to simply break its promise by letting the debt/GDP growth rise. None of this surprising. Just like promises to always balance the budget, one cannot avoid debt rising faster than GDP during a downturn. That is why it was wrong to push up deficits during good times, which now hangs as a massive weight on the Trudeau government’s fiscal neck.

Jack M. Mintz is the President’s Fellow at the University of Calgary’s School of Public Policy and is a Distinguished Fellow at the Macdonald-Laurier Institute.

Tags: debtdeficiteconomic policyeconomyfederal budgetJack Mintz
Previous Post

Ep. 44 – Understanding China’s “Stealth War,” with Gen. Robert Spalding and Charles Burton

Next Post

Is Toronto under the sway of Kremlin propaganda?: Marcus Kolga in the Toronto Sun

Related Posts

Oaths, trust and Canadian democracy: Stephen Van Dine and Karl Salgo for Inside Policy
Inside Policy

Oaths, trust and Canadian democracy: Stephen Van Dine and Karl Salgo for Inside Policy

March 17, 2023
Preparing for the Foreign Threats to Canadian Democracy: Straight Talk with Richard Fadden
Inside Policy

Canada and Japan’s common miscalculation in cyberspace: Koichiro Komiyama for Inside Policy

March 15, 2023
Defending against foreign interference in our elections: Marcus Kolga for Inside Policy
Columns

As Ottawa balks at an election interference inquiry, public trust in our democracy is draining away: Marcus Kolga in the Globe and Mail

March 15, 2023
Next Post
Is Toronto under the sway of Kremlin propaganda?: Marcus Kolga in the Toronto Sun

Is Toronto under the sway of Kremlin propaganda?: Marcus Kolga in the Toronto Sun

Macdonald-Laurier Institute

323 Chapel Street, Suite #300
Ottawa, Ontario
K1N 7Z2 Canada

613.482.8327

info@macdonaldlaurier.ca
MLI directory

Follow us on

Newsletter Signup

Support Us

Support the Macdonald-Laurier Institute to help ensure that Canada is one of the best governed countries in the world. Click below to learn more or become a sponsor.

Support Us

Inside Policy Magazine

  • Current Issue
  • Back Issues
  • Advertising
  • Inside Policy Blog
  • Privacy Policy

© 2021 Macdonald-Laurier Institute. All Rights reserved.

No Result
View All Result
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
    • Women’s History Month Fundraiser
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Energy Policy Program
      • Energy
      • Environment
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Competition Policy in Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Annual Reports
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media

© 2021 Macdonald-Laurier Institute. All Rights reserved.