Open this photo in gallery: Mark Carney listens as then-Prime Minister Justin Trudeau speaks on the day members of Canada's Liberal Party gather to choose a successor to Mr. Trudeau, in Ottawa, on March 9.Carlos Osorio/Reuters Jake Fuss is director of fiscal studies at the Fraser Institute. The Liberals won the federal election on Monday partly as a result of the perception that Prime Minister Mark Carney will move his government back to the political centre and be more responsible with taxpayer dollars. But in fact, according to his fiscal plan, he doesn’t think his predecessor, Justin Trudeau, was spending and borrowing enough.
To recap, the Trudeau government recorded 10 consecutive budget deficits, racked up $1.1-trillion in debt and recorded the six highest-spending years (per person, adjusted for inflation) in Canadian history from 2018 to 2023. Last fall, it projected large deficits (and $400-billion in additional debt) over the next four years, including a $42.2-billion deficit this fiscal year. By contrast, under Mr. Carney’s plan, this year’s deficit is set to increase to a projected $62.4-billion.
The combined deficits over the subsequent three years is expected to be $67.7-billion higher than under Mr. Trudeau’s plan. Consequently, the federal debt and associated interest costs will rise sharply. Under Mr. Trudeau’s plan, federal debt interest would have reached a projected $66.3-billion in 2028-29, compared with $68.7-billion under the new Carney plan.
That’s roughly equivalent to what the government will spend on employment insurance (EI), the Canada Child Benefit and $10-a-day daycare combined. More taxpayer dollars are set to be diverted away from programs and services, and toward servicing the debt. Clearly, Mr. Carney plans to surpass Mr. Trudeau as the biggest spender in Canadian history.
On the campaign trail, Mr. Carney was creative in attempting to sell this as a responsible fiscal plan. For example, he split operating and capital spending into two separate budgets. According to his plan’s projections, the government will balance the operating budget –which includes bureaucrat salaries, cash transfers (such as health care funding) and benefits (such as Old Age Security) – by 2028-29, while borrowing huge sums to substantially increase capital spending, defined by Mr. Carney as anything that builds an asset.
This is sleight-of-hand budgeting. Tell the audience to look somewhere – in this case, the operating budget – so it ignores what’s happening in the capital budget. It’s also far from certain Mr. Carney will actually balance the operating budget.
He’s banking on finding a mysterious $28-billion in savings from “increased government productivity.” His plan to use artificial intelligence and amalgamate service delivery will not magically deliver these savings. He’s already said no to cutting the bureaucracy or reducing any cash transfers to the provinces or individuals. With such a large chunk of spending exempt from review, it’s very difficult to see how meaningful cost savings will materialize.
And there’s no plan to pay for Mr. Carney’s spending explosion. Because of rising deficits and debt, the bill will come due later, and younger generations of Canadians will bear this burden through higher taxes and/or fewer services. Finally, there’s an obvious parallel between Mr. Carney and Mr. Trudeau on the inventive language used to justify more spending.
According to Mr. Carney, his plan is not increasing spending but rather “investing” in the economy. Thus his campaign slogan: “Spend less, invest more.” This wording is eerily similar to the 2015 and 2019 Trudeau election platforms, which claimed all new spending measures were merely “investments” that would increase economic growth. Regardless of the phrasing, Mr. Carney’s spending increases will produce the same results as under Mr. Trudeau: Federal finances will continue to deteriorate without any improvement in economic growth.
Canadian living standards (measured by per-person gross domestic product) are lower today than they were seven years ago, despite a massive increase in federal “investment” during the Trudeau years. Yet Mr. Carney, not content to double down on this failed approach, plans to accelerate it. The numbers don’t lie: Mr. Carney’s fiscal plan includes more spending and borrowing than Mr. Trudeau’s plan.
This will be a fiscal and economic disaster, with Canadians paying the price.
