From the Fraser Institute

By Jake Fuss

With an election looming, and despite uncertainty over when the next federal budget will be tabled, the federal government recently launched its pre-budget consultations to get input from Canadians about their policy priorities.

And a change in course is long overdue. For example, from 2018 to 2023, the Trudeau government recorded the six highest levels of per-person spending (adjusted for inflation) in Canadian history. Put differently, before, during and after COVID the government spent more money annually than it did during the Great Depression, both world wars, and the peak of the Global Financial Crisis in 2008/09.

Meanwhile, the revenue generated through a bevy of tax hikes (on top income earners and 86 per cent of middle-income families) has been insufficient to pay for all this spending. So the government chose to borrow and burden future generations of Canadians who will pay for today’s debt through higher taxes tomorrow. Consequently, the Trudeau government ran nine consecutive deficits and total federal debt per person (adjusted for inflation) is now at the highest point in Canadian history.

And according to projections, the state of federal finances will likely get worse. At its current trajectory of spending, the government will run six more deficits between 2024/25 and 2029/30 and accumulate substantially more debt. Of course, like households, government must pay interest on debt, and rising interest costs leave less money available for programs and services. By 2029/30, the government will spend a projected $69.4 billion on debt interest payments, which is significantly more than projected GST revenue that year.

To prevent this scenario, the next federal government—whoever that may be—should review in detail all areas of federal spending, find potential savings based on the Chrétien government’s successful approach in the 1990s, balance the budget and end the red ink.

A good first step would be to reduce the size of the federal bureaucracy. Federal government employment (as measured in full-time equivalents) in Ottawa and across the country increased by 26.1 per cent between 2015/16 and 2022/23—growing nearly three times as fast as the Canadian population. Had the size of the federal bureaucracy simply grown in line with population growth, federal spending would be $7.5 billion lower than it is today.

Despite this sizeable increase in government, many Canadians remain frustrated with service quality. According to a 2023 poll, nearly half (44 per cent) of Canadians feel they receive “poor” or “very poor” value from government services. More administrators and managers in government has also failed to help produce higher living standards for Canadians. As of September 2024, per-person GDP, an indicator of incomes and living standards, was down 2.2 per cent compared to five years earlier (after adjusting for inflation). Reducing the number of federal bureaucrats would provide billions in savings for Ottawa to reduce the deficit and help pave a path back to budget balance, without sacrificing service quality.

The government could find additional savings by eliminating corporate welfare and subsidies to legacy media outlets, and abolishing the Canada Infrastructure Bank, which since 2017 has approved “investments” totalling $13.2 billion (as of the fourth quarter of 2023-24) and completed only two projects—the purchase of 20 electric buses in Edmonton and the construction of two solar facilities in Calgary.

Ottawa’s addiction to spending and debt cannot continue. Returning to balanced budgets must be a top priority in the next federal budget and for the next government.

Jake Fuss

Director, Fiscal Studies, Fraser Institute