Last fall, the federal government released an economic update presented by the Finance Minister Chrystia Freeland.
It is not unusual for a finance minister to promote a budget or a budget update; it is expected. However, two aspects of this budget update stood out to me.
The first was that the government expressed hope to achieve a balanced budget by the 2027-2028 fiscal period. That stood out because, until now, Prime Minister Justin Trudeau’s (government) has not tried to balance the budget. He is known for once stating "the budget will balance itself."
The following comment from the finance minister, in the second part of this budget update, also struck me.
"As the Bank of Canada fights inflation, we will not make its job harder,” said Freeland
The comment is significant because it is the first time a minister from the Trudeau government publicly acknowledged its deficit-related spending contributes to increased inflation.
As many struggling families know, when the Bank of Canada raises interest rates, it creates severe financial hardship in many households. This problem has become so severe that recent news reports highlighted situations where seniors on fixed incomes were forced to sell their homes because they can no longer afford the payments. What's worse is many seniors have nowhere else to go.
Since the last fall fiscal update, (the government) has entirely abandoned any fiscal plans to reduce spending or balance the budget in the future. One challenge for the minority Liberal government is it entered into a (confidence and supply) agreement with the NDP to gain political support. In exchange, it committed to implementing (some) NDP programs involving significant federal government spending expenditures.
Bank of Canada governor Tiff Macklem addressed this additional government spending, saying, “For next year, we expect government spending to grow at about 2.5%. If all those spending plans are realized, government spending will be adding to demand more than supply is growing and in an environment where we're trying to moderate spending and get inflation down, that's not helpful."
Unfortunately, most of this spending is funded by borrowing, which increases our deficit. Consequently, the debt also increases, and with higher interest rates, the government faces higher borrowing costs related to the debt. This year, the March budget initially projected debt servicing would reach $43.9 billion and increase to $50.3 billion by 2027.
As some have observed, while interest rates have increased since March, debt servicing costs have also increased. When asked (about this) at a recent Parliamentary committee meeting, the assistant deputy finance minister stated: "At present, we do not have a revised estimate for public debt charges in 2023."
This is a significant concern because the federal government is nearing the point where it will spend as much on servicing the debt as it does on the Canada Health Transfer, which amounts to $49.3 billion. Meanwhile, the NDP persists in calling for additional programs that will only contribute to further unsustainable spending.
That leads to my question for this week:
Is the NDP-Liberal support deal in Ottawa serving Canada well? Why or why not?
I can be reached at [email protected] or call toll-free at 1-800-665-8711.
Dan Albas is the Conservative MP for Central Okanagan-Similkameen-Nicola.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.