With growth flat and interest payments ballooning there’s no room for new spending unless deficits are cranked up again — a bad idea
In her economic update Tuesday, Finance Minister Chrystia Freeland just couldn’t help taking a swipe at Leader of the Opposition Pierre Poilievre when she declared: “Canada is not and has never been broken.” In the early 1990s, Canada did come close to needing IMF assistance, but Liberal finance minister Paul Martin’s 1995 budget pulled us back from the abyss by cutting program spending 20 per cent and putting the country back on a path towards balanced budgets. We did receive short-term finance from the IMF during the currency crisis of 1962, but we have never reneged on public debt, unlike hapless Argentina, which has defaulted nine times since its independence in 1816.
Canada may not be broken but the federal government is all but broke and is clearly running out of steam. With a weak economy growing only a little faster than population, there is not a lot of spending room left, not unless deficits and debts are cranked up again. As it is, debt as share of GDP jumps from 41.7 per cent in fiscal year 2022/23 to 42.4 per cent in 2023/24. So much for the fiscal anchors we were promised.
After that, the finance minister predicts, debt as a share of GDP will fall ever so gently to 39 per cent over the following four years. I am quite skeptical about five-year forecasts, especially from a government that over eight years has failed to keep any deficit and debt promises. The 2015 election commitment to cap the deficit at $10 billion is long gone. So is the promise to keep the debt/GDP ratio from rising. Even before the pandemic, federal debt was creeping back up to over 30 per cent of GDP. After eye-popping spending during COVID, any plan to return to pre-pandemic levels has been ditched. Instead, we just accept debt at 40 per cent of GDP and move on. And if a recession hits, you can bet your bottom dollar — which may be the only dollar you have left — that federal debt/GDP will reach a new plateau, also never to be reversed.
As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” With growing public debt charges, expenditures are rising 13.6 per cent over the next three years, faster than revenues, which are forecast to grow only 12.2 per cent. Much of this spending growth is due to interest payments that are rising by almost a half to $53 billion in 2025/26. That is a ton of money — many tons of money — that could have gone to health care, defence or even, yes, general tax cuts. Instead, we are filling the pockets of Canadian and foreign investors who find Canadian bonds very attractive at the interest rates they’re currently paying.
Small mercies: At least the Liberals feel obliged to say they will keep the lid on spending in the short term. Thus they forecast program spending rising by only 10.5 per cent over three years, with a program review expected to trim its growth by $15 billion. On the other hand, the forecast for deficits averages close to $40 billion a year for the next three years.
Economic updates used to be just that, reports on how things are going, but increasingly they are mini-budgets that introduce new measures. With the Liberals sinking in the polls, housing affordability is the focus. But with higher interest rates and more stringent climate and other regulations adding to construction costs, it is unclear how much more housing supply will grow even with the new measures. New spending over five years includes a $1-billion “affordable housing fund” and the previously announced $4.6 billion in GST relief on new rental construction. There’s also $15 billion in loans for apartment construction and $20 billion in low-cost, government-backed CMHC financing, neither of which adds to the deficit.
When money is scarce, of course, nanny-state regulations come into play, as well. A “mortgage charter” will guide banks on how to provide relief for distressed owners (even though banks already prefer to keep people in their homes rather than foreclose). Deductions incurred by operators of short-term rentals will be denied in those municipalities and provinces that prohibit such rentals. Temporary foreign workers in construction will get priority for permanent residence.
The housing plan wasn’t the only focus in the economic statement. To address affordability and climate change, the current government takes pride in its pyramid of budget-busting subsidies for clean energy and regulations dictating private-sector behaviour regarding such things as “junk fees” and grocery prices. There’s also GST relief for psychotherapists and more generous subsidies for journalists and news organizations. (I suppose I should bend a knee to the minister and doff my cap.)
What’s missing in the statement? It barely mentions the country’s poor productivity performance. And you will word-search in vain for “tax reform,” “general tax relief” or “deregulation” aimed at spurring private sector investment. No mention is made that accelerated tax depreciation for capital investment, introduced in 2018, is being phased out beginning January 1st, which will discourage private investment, including in housing construction. Instead, the Liberal economic plan is all about more government, not less, to grow the economy. Without the private sector, that’s not going to work.
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The best academic estimates show that over the century, policies to achieve net zero would cost every person on Earth the equivalent of more than CAD $4,000 every year. Of course, most people in poor countries cannot afford anywhere near this. If the cost falls solely on the rich world, the price-tag adds up to almost $30,000 (CAD) per person, per year, over the century.
Canada has made a legal commitment to achieve “net zero” carbon emissions by 2050. Back in 2015, then-Prime Minister Trudeau promised that climate action will “create jobs and economic growth” and the federal government insists it will create a “strong economy.” The truth is that the net zero policy generates vast costs and very little benefit—and Canada would be better off changing direction.
Achieving net zero carbon emissions is far more daunting than politicians have ever admitted. Canada is nowhere near on track. Annual Canadian CO₂ emissions have increased 20 per cent since 1990. In the time that Trudeau was prime minister, fossil fuel energy supply actually increased over 11 per cent. Similarly, the share of fossil fuels in Canada’s total energy supply (not just electricity) increased from 75 per cent in 2015 to 77 per cent in 2023.
Over the same period, the switch from coal to gas, and a tiny 0.4 percentage point increase in the energy from solar and wind, has reduced annual CO₂ emissions by less than three per cent. On that trend, getting to zero won’t take 25 years as the Liberal government promised, but more than 160 years.One study shows that the government’s current plan which won’t even reach net-zero will cost Canada a quarter of a million jobs, seven per cent lower GDP and wages on average $8,000 lower.
Globally, achieving net-zero will be even harder. Remember, Canada makes up about 1.5 per cent of global CO₂ emissions, and while Canada is already rich with plenty of energy, the world’s poor want much more energy.
In order to achieve global net-zero by 2050, by 2030 we would already need to achieve the equivalent of removing the combined emissions of China and the United States — every year. This is in the realm of science fiction.
The painful Covid lockdowns of 2020 only reduced global emissions by about six per cent. To achieve net zero, the UN points out that we would need to have doubled those reductions in 2021, tripled them in 2022, quadrupled them in 2023, and so on. This year they would need to be sextupled, and by 2030 increased 11-fold. So far, the world hasn’t even managed to start reducing global carbon emissions, which last year hit a new record.
Data from both the International Energy Agency and the US Energy Information Administration give added cause for skepticism. Both organizations foresee the world getting more energy from renewables: an increase from today’s 16 per cent to between one-quarter to one-third of all primary energy by 2050. But that is far from a transition. On an optimistically linear trend, this means we’re a century or two away from achieving 100 percent renewables.
Politicians like to blithely suggest the shift away from fossil fuels isn’t unprecedented, because in the past we transitioned from wood to coal, from coal to oil, and from oil to gas. The truth is, humanity hasn’t made a real energy transition even once. Coal didn’t replace wood but mostly added to global energy, just like oil and gas have added further additional energy. As in the past, solar and wind are now mostly adding to our global energy output, rather than replacing fossil fuels.
Indeed, it’s worth remembering that even after two centuries, humanity’s transition away from wood is not over. More than two billion mostly poor people still depend on wood for cooking and heating, and it still provides about 5 per cent of global energy.
Like Canada, the world remains fossil fuel-based, as it delivers more than four-fifths of energy. Over the last half century, our dependence has declined only slightly from 87 per cent to 82 per cent, but in absolute terms we have increased our fossil fuel use by more than 150 per cent. On the trajectory since 1971, we will reach zero fossil fuel use some nine centuries from now, and even the fastest period of recent decline from 2014 would see us taking over three centuries.
Global warming will create more problems than benefits, so achieving net-zero would see real benefits. Over the century, the average person would experience benefits worth $700 (CAD) each year.
But net zero policies will be much more expensive. The best academic estimates show that over the century, policies to achieve net zero would cost every person on Earth the equivalent of more than CAD $4,000 every year. Of course, most people in poor countries cannot afford anywhere near this. If the cost falls solely on the rich world, the price-tag adds up to almost $30,000 (CAD) per person, per year, over the century.
Every year over the 21st century, costs would vastly outweigh benefits, and global costs would exceed benefits by over CAD 32 trillion each year.
We would see much higher transport costs, higher electricity costs, higher heating and cooling costs and — as businesses would also have to pay for all this — drastic increases in the price of food and all other necessities. Just one example: net-zero targets would likely increase gas costs some two-to-four times even by 2030, costing consumers up to $US52.6 trillion. All that makes it a policy that just doesn’t make sense—for Canada and for the world.
The Canadian Taxpayers Federation released Leger polling showing Canadians want the federal government to cut spending and shrink the size and cost of the bureaucracy.
“The poll shows most Canadians want the federal government to cut spending,” said Gage Haubrich, CTF Prairie Director. “Canadians know they pay too much tax because the government wastes too much money.”
Between 2019 and 2024, federal government spending increased 26 per cent even after accounting for inflation. Leger asked Canadians what they think should happen to federal government spending in the next five years. Results of the poll show:
43 per cent say reduce spending
20 per cent say increase spending
16 per cent say maintain spending
20 per cent don’t know
The federal government added 108,000 bureaucrats and increased the cost of the bureaucracy 73 per cent since 2016. Leger asked Canadians what they think should happen to the size and cost of the federal bureaucracy. Results of the poll show:
53 per cent say reduce
24 per cent say maintain
4 per cent say increase
19 per cent don’t know
Liberal Leader Mark Carney promised to “balance the operating budget in three years.” Leger asked Canadians if they believed Carney’s promise to balance the budget. Results of the poll show:
58 per cent are skeptical
32 per cent are confident
10 per cent don’t know
“Any politician that wants to fix the budget and cut taxes will need to shrink the size and cost of Ottawa’s bloated bureaucracy,” Haubrich said. “The polls show Canadians want to put the federal government on a diet and they won’t trust promises about balancing the budget unless politicians present credible plans.”
