By Jerome Gessaroli, April 12, 2023
Governments routinely spin economic data to suit their political objectives, but while a budget speech is both an economic and political document, it still needs to be based on sound logic and statistics.
Unfortunately, Finance Minister Chrystia Freeland’s budget speech this spring was replete with distorted logic and selected statistics, more appropriate for a political rally than a discussion of Canada’s economic realities. While much has been written on the budget, a few important items have received less attention. Economists know the devil is often in the details, and correcting any details can often lead to very different outcomes.
In her speech, Freeland promoted the new Canada-wide affordable early learning and childcare system as a major economic opportunity for Canadian mothers. She claimed it had led to a record-high labour force participation rate of 85.7 percent for Canadian women in their prime working years.
While affordable childcare can boost labour force participation, it’s important to remember the government’s program was signed off in mid-2021 and will create childcare spaces over the next five years. Moreover, Statistics Canada reported that in 2022, some 52 percent of children (less than 6 years old) were in childcare, which is down from 2019’s figure of 60 percent. Claiming that record-high female labour force participation is due to a new program is going one step beyond credibility.
Freeland’s use of statistics was also eye-catching. She said inflation has fallen for eight consecutive months and was projected to drop to 2.6 percent by year-end, and the average wage for Canadians rose by 5.4 percent in February which, according to her, meant that workers’ pay had outpaced inflation.
These statistics were cherry-picked to present a favourable picture for workers. For instance, the 2.6 percent inflation rate is the forecast for an entire year, meaning it is subject to variation. Similarly, the 5.4 percent wage increase is based on a single monthly Labour Force Survey result. The Bank of Canada uses a more robust figure to estimate wage growth, which most recently stood at 3.4 percent. The government assuredly wants to put a positive spin on the economy, but whether workers’ wages will exceed inflation is very much unknown.
When she got around to discussing government debt, Freeland claimed the budget “will ensure that Canada maintains the lowest deficit and the lowest debt-to-GDP ratio in the G7.” The government has said this before, and it is misleading.
It is the overall level of government debt that matters; this includes both federal and provincial debt. When we include provincial debt, the International Monetary Fund ranks Canada with the fourth highest debt-to-GDP ratio in the G7 countries. Some may argue that Ottawa is not constitutionally responsible for provincial debt, but the federal government has taken on an implicit responsibility through its previous actions in bailing out Alberta and Saskatchewan earlier in the 20th century. Fitch Ratings also considers provincial debt when determining Canada’s sovereign credit rating.
So, while Freeland’s statement about Canada having the lowest debt-to-GDP ratio in the G7 countries may be technically correct for national debt alone, it is not the best indicator of how much debt Canadians are actually responsible for.
When Freeland proudly declared she is “determined to uphold” Canada’s “tradition of fiscal responsibility,” she said the federal government will cut spending by more than $15 billion without compromising essential services for Canadians. The logic she uses is twisted. If a government can reduce spending by billions without affecting essential services, surely this suggests the government was overspending in the first place — contradicting the claim that they were fiscally responsible.
Finally, referring to the government’s support for housing, the minister said “We are investing in housing because our economy is built by people, and people need homes in which to live.” It is difficult to imagine anyone disagreeing with the idea that people need homes to live in. I will let this sentence stand on its own and have the readers judge it themselves.
It is understandable for Finance Minister Freeland to use her budget speech as a platform to promote the government’s policies and achievements. It is also important though to provide a fair and accurate representation of the facts. Failure to do so risks weakening the trust that Canadians have in their government and eroding the finance minister’s credibility and policies.
Jerome Gessaroli is a senior fellow at the Macdonald-Laurier Institute, and leads “The Sound Economic Policy Project” at the British Columbia Institute of Technology.