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Spending sprees by governments across Canada help fuel inflation and high interest rates

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4 minute read

From the Fraser Institute

By Jake Fuss and Grady Munro

While the prime minister and many premiers justified their high spending levels during the pandemic as merely a temporary development, the federal government and seven provincial governments still plan to run budget deficits this year

Earlier this year, premiers in Ontario, British Columbia, and Newfoundland and Labrador wrote  letters to Tiff Macklem, Governor of the Bank of Canada, cautioning against further interest rate hikes, citing the potential negative effects on residents including homeowners with mortgages. But instead of blaming the central bank, Canadian premiers—and the prime minister—should stop their spending sprees, which help fuel inflation and increase interest rates.

Indeed, when governments increase spending, particularly when financed by debt, they add more money to the economy and can help fuel inflation. And high rates of government spending put pressure on the Bank of Canada to maintain interest rates at current levels, or even hike the rate further, to counteract inflation. According to a recent report from Scotiabank, government spending has contributed significantly to higher interest rates in Canada, accounting for an estimated 42 per cent of the increase in the Bank of Canada’s rate since the first quarter of 2022.

Yet the spending sprees continue.

While the prime minister and many premiers justified their high spending levels during the pandemic as merely a temporary development, the federal government and seven provincial governments still plan to run budget deficits this year. Government spending across the country remains at elevated levels or, in some cases, even increased beyond pandemic levels.

Ontario is a prime example. Provincial program spending (total spending minus interest costs) will reach an estimated $193.0 billion in 2023/24—$24.0 billion more than at the peak of COVID. Debt interest costs have also grown due to debt accumulation and rising interest rates.

Despite a considerable increase in revenue over recent years, the Ford government had planned for a $1.3 billion deficit in its spring budget. By November, the government increased spending again and quadrupled the projected deficit to $5.6 billion.

Similarly, British Columbia outlined plans in February to increase program spending and run a $4.2 billion deficit while adding $13.1 billion in debt to the books this year. Just over a half-year later, the B.C. government increased spending again and the deficit was revised to $5.6 billion with debt rising by $14.0 billion instead of $13.1 billion.

Prime Minister Trudeau and his government followed a similar path. According to the recent federal fiscal update, between 2024/25 and 2027/28, the government has increased projected spending by $30.7 billion more than previously forecasted.

According to projections, only two provinces (Alberta and New Brunswick) will run budget surpluses this year, but in Alberta this is largely due to elevated resource revenues stemming from high commodity prices rather than any significant spending restraint. If resource revenues declined to historical average levels, the Smith government in Alberta would likely run deficits similar to other provinces.

Simply put, the excessive spending habits of many premiers and the prime minister are a big reason why interest rates have climbed and inflation remains sticky.

If Canadian politicians want to help tame inflation and bring down interest rates, they should look in the mirror for solutions and show leadership. Complaining about elevated interest rates helps no one, but ensuring fiscal policy is rowing in the same direction as monetary policy would be a good start.

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2025 Federal Election

As PM Poilievre would cancel summer holidays for MP’s so Ottawa can finally get back to work

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From Conservative Party Communications

In the first 100 days, a new Conservative government will pass 3 laws:

1. Affordability For a Change Act—cutting spending, income tax, sales tax off homes

2. Safety For a Change Act to lock up criminals

3. Bring Home Jobs Act—that repeals C-69, sets up 6 month permit turnarounds for new projects

No summer holiday til they pass!

Conservative Leader Pierre Poilievre announced today that as Prime Minister he will cancel the summer holiday for Ottawa politicians and introduce three pieces of legislation to make life affordable, stop crime, and unleash our economy to bring back powerful paycheques. Because change can’t wait.

A new Conservative government will kickstart the plan to undo the damage of the Lost Liberal Decade and restore the promise of Canada with a comprehensive legislative agenda to reverse the worst Trudeau laws and cut the cost of living, crack down on crime, and unleash the Canadian economy with ‘100 Days of Change.’ Parliament will not rise until all three bills are law and Canadians get the change they voted for.

“After three Liberal terms, Canadians want change now,” said Poilievre. “My plan for ‘100 Days of Change’ will deliver that change. A new Conservative government will immediately get to work, and we will not stop until we have delivered lower costs, safer streets, and bigger paycheques.”

The ’100 Days of Change’ will include three pieces of legislation:

The Affordability–For a Change Act 

Will lower food prices, build more homes, and bring back affordability for Canadians by:

We will also:

  • Identify 15% of federal buildings and lands to sell for housing in Canadian cities.

The Safe Streets–For a Change Act 

Will end the Liberal violent crime wave by:

The Bring Home Jobs–For a Change Act 

This Act will be rocket fuel for our economy. We will unleash Canada’s vast resource wealth, bring back investment, and create powerful paycheques for workers so we can stand on our own feet and stand up to Trump from a position of strength, by:

Poilievre will also:

  • Call President Trump to end the damaging and unjustified tariffs and accelerate negotiations to replace CUSMA with a new deal on trade and security. We need certainty—not chaos, but Conservatives will never compromise on our sovereignty and security. 
  • Get Phase 2 of LNG Canada built to double the project’s natural gas production.
  • Accelerate at least nine other projects currently snarled in Liberal red tape to get workers working and Canada building again.

“After the Lost Liberal Decade of rising costs and crime and a falling economy under America’s thumb, we cannot afford a fourth Liberal term,” said Poilievre. “We need real change, and that is what Conservatives will bring in the first 100 days of a new government. A new Conservative government will get to work on Day 1 and we won’t stop until we have delivered the change we promised, the change Canadians deserve, the change Canadians voted for.”

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Automotive

Canadians’ Interest in Buying an EV Falls for Third Year in a Row

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From Energy Now

Electric vehicle prices fell 7.8 per cent in the last quarter of 2024 year-over-year, according to the AutoTader price index

Fewer Canadians are considering buying an electric vehicle, marking the third year in a row interest has dropped despite lower EV prices, a survey from AutoTrader shows.

Forty-two per cent of survey respondents say they’re considering an EV as their next vehicle, down from 46 per cent last year. In 2022, 68 per cent said they would consider buying an EV.

Meanwhile, 29 per cent of respondents say they would exclusively consider buying an EV — a significant drop from 40 per cent last year.

The report, which surveyed 1,801 people on the AutoTrader website, shows drivers are concerned about reduced government incentives, a lack of infrastructure and long-term costs despite falling prices.

Electric vehicle prices fell 7.8 per cent in the last quarter of 2024 year-over-year, according to the AutoTader price index.

The survey, conducted between Feb. 13 and March 12, shows 68 per cent of non-EV owners say government incentives could influence their decision, while a little over half say incentives increase their confidence in buying an EV.

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