Federal government keeps violating self-imposed fiscal rules

By continually violating its own fiscal anchor, the Trudeau government has rendered the rule meaningless and abandoned the discipline it’s meant to impose.

Last week, after tabling the Trudeau government’s fall fiscal update, which includes evermore spending and borrowing, Finance Minister Chrystia Freeland called it a “responsible fiscal plan.” Upon closer scrutiny, however, the finance minister has once again abandoned her self-imposed fiscal rules and continues to spend, borrow and tax at unsustainable levels.

Fiscal rules, also known as “fiscal anchors,” help guide policy on government spending, taxes and borrowing. They’re supposed to prevent a deterioration in government finances, with an eye on ensuring debt is sustainable for future generations.

After taking office in 2015, the Trudeau government announced its fiscal anchor—balance the budget by fiscal year 2019-20. When the government quickly realized it would not achieve this goal, it dropped a new fiscal anchor—reduce Canada’s debt-to-GDP ratio, a common measure of a country’s ability to pay back its debt. However, the 2019 fall fiscal update revealed the government had violated its new fiscal anchor before the pandemic, as debt-to-GDP ticked up slightly from 30.8 to 31.0 per cent. In other words, federal debt grew slightly faster than the Canadian economy.

Then the government spent and borrowed hundreds of billions during COVID, driving debt-to-GDP up to 47.2 per cent in 2020-21. Afterwards, as the economy rebounded, the ratio levelled off and stabilized around 42 per cent in 2022-23.

Last week, Minister Freeland indicated the government will violate its own fiscal anchor at least two more times—debt-to-GDP will increase to 42.4 per cent in 2023-24 then climb higher in 2024-25. Again, federal debt is growing faster than the Canadian economy.

By continually violating its own fiscal anchor, the Trudeau government has rendered the rule meaningless and abandoned the discipline it’s meant to impose. There’s little direction for federal finances and almost nothing to ensure the government is disciplined with spending and debt growth. In such a scenario, politics—not responsible fiscal principles—governs decisions over the public purse.

So, what are the consequences to this wholly undisciplined approach to fiscal policy?

All else equal, a rising debt-to-GDP ratio means that debt interest costs will rise relative to the size of the economy. Spending on rising debt interest costs will divert money away from government programs and/or crowd out any fiscal room for tax relief for Canadian families.

And debt interest costs are rising rapidly. In 2020/21, when interest rates were at historic lows, the federal government spent $20.4 billion on debt interest. This year, interest costs will reach a projected $46.5 billion, more than double what they were three years ago. And will hit a projected $60.7 billion by 2028/29—double what the government plans to spend on employment insurance benefits that year.

Finally, according to last week’s fiscal update, debt-to-GDP will begin to decline after 2024/25, but this should be taken with a huge grain of salt since this government has consistently increased spending and debt beyond its original projections. And there’s nothing preventing the government from scrapping these commitments like they have with all their other fiscal anchors. Given the government’s clear preference for spending financed by borrowing, our debt-to-GDP ratio will likely continue to grow.

Unfortunately, there are few signs the Trudeau government will transform into a responsible steward of public finances and take meaningful steps to control debt and debt interest costs. And of course, Canadian taxpayers will pay the price.

Authors:

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Junior Policy Analyst, Fraser Institute

Related Topics:#BallancedBudget #ChrystiaFreeland #DebtToGDPRatio #FederalDebt #FraserInstitute #GradyMunro #JakeFuss

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Next federal government should reverse Ottawa’s plastics ban

Published on March 6, 2025

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From the Fraser Institute

By Julio Mejía and Elmira Aliakbari

As noted by the Trudeau government, plastic substitutes contribute to lower air quality and “typically have higher climate change impacts” due to higher GHG emissions.

Recently at the White House, President Donald Trump signed an executive order reversing the Biden administration’s plan to phase out plastic straws. The Trudeau government, however, continues with its plan to ban single-use plastics, even though this prohibition will have minimal impact worldwide, will actually increase waste in Canada, and force a transition to alternatives that impose greater environmental harm. Rather than doubling down on a flawed policy, the next federal government should reverse Trudeau’s plastic ban.

In 2021, the Trudeau government classified plastic items as “toxic,” paving the way for the ban on the manufacturing, importing and selling of checkout bags, cutlery, stir sticks and straws—all single-use plastics. In 2023, the Federal Court deemed the designation “unreasonable and unconstitutional”—but the Trudeau government defended the measure and is appealing, with a ruling expected this year.

According to the latest available data, Canada’s contributes 0.04 per cent to global plastic waste. The United States contributes 0.43 per cent—more than 10 times Canada’s share. But neither country is a major contributor to global plastic waste.

According to a 2024 article published in Nature, a leading scientific journal, no western country ranks among the top 90 global plastic polluters, thanks to their near-total waste collection and controlled disposal systems. Conversely, eight countries—India, Nigeria, Indonesia, China, Pakistan, Bangladesh, Russia and Brazil—generate more than half of global plastic waste. And nearly 75 per cent of the world’s ocean plastic comes from Asia with only six countries (Philippines, India, Malaysia, China, Indonesia and Myanmar) accounting for most of the world’s ocean plastic pollution.

The Trudeau government’s own science assessment, cited in the court appeal, states that 99 per cent of Canada’s plastic waste is already disposed of safely through recycling, incinerating and environmentally-friendly landfills. Despite these facts, plastic has become a target for blanket restrictions without fully considering its benefits or the downsides of switching to alternatives.

Consider this. Plastics are lightweight, durable and indispensable to modern life. From medical devices, food packaging, construction materials, textiles, electronics and agricultural equipment, plastics play a critical role in sectors that improve living standards.

Alternatives to plastic come with their own environmental cost. Again, according to the government’s own analysis, banning single-use plastics will actually increase waste generation rather than reduce it. While the government expects to remove 1.5 million tonnes of plastics by 2032 with the prohibition, it will generate nearly twice as much that weight in waste from alternatives such as paper, wood and aluminum over the same period. Put simply, the ban will result in more, not less, waste in Canada.

And there’s more. Studies suggest that plastic substitutes such as paper are heavier, require more water and energy to be produced, demand more energy to transport, contribute to greater smog formation, present more ozone depletion potential and result in higher greenhouse gas (GHG) emissions.

As noted by the Trudeau government, plastic substitutes contribute to lower air quality and “typically have higher climate change impacts” due to higher GHG emissions.

While plastic pollution is a pressing global environmental issue, Canada is not a major contributor to this problem. The rationale behind the Trudeau government’s plastic ban lacks foundation, and as major economies including the U.S. go back to plastic, Canada’s plastic prohibition becomes increasingly futile. The next federal government, whoever that may be, should reverse this plastic ban, which will do more harm than good.

Julio Mejía

Policy Analyst

Elmira Aliakbari

Director, Natural Resource Studies, Fraser Institute

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Trump walks back tariffs on Mexico, Canada for another month

Published on March 6, 2025

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From The Center Square

By Brett Rowland

Stocks sunk Thursday afternoon despite President Donald Trump’s decision to grant major exceptions to the 25% tariffs he put on Mexico and Canada earlier this week.

All three major U.S. market indexes were in the red by the time of Trump’s afternoon bill signing. Trump said Thursday in the Oval Office that steel and aluminum tariffs were on track for next week without modifications.

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Trump has promised that his tariffs would shift the tax burden away from Americans and onto foreign countries, but tariffs are generally paid by the people who import the products. Those importers then have a choice: They can either absorb the loss or pass it on to consumers through higher prices. He also promised tariffs would make America “rich as hell.” And he’s used tariffs as a negotiating tactic to tighten border security.

Trump granted temporary tariff relief to both Canada and Mexico on Thursday by exempting goods under the United States-Mexico-Canada Agreement from tariffs until April 2.

On April 2, Trump plans to announce broader reciprocal tariffs against countries that impose tariffs on U.S. goods or keep U.S. goods out of their markets through other methods.

Since imposing his latest round of tariffs on top of trading partners this week, Trump has been paring them back. On Wednesday, Trump said the Big Three automakers – Ford Motor Co., General Motors Co. and Stellantis NV – would be exempt from his tariffs for a month.

In February, Trump took a step forward on his plan to put reciprocal tariffs on U.S. trading partners by signing a memo directing staff to come up with solutions in 180 days. Trump previously said he would put those tariffs in place on April 2 to avoid any confusion on April 1.

In his joint address to Congress on Tuesday, Trump said all countries would have to either make their products in the U.S. or be subject to tariffs.

“Whatever they tariff us, we tariff them. Whatever they tax us, we tax them,” Trump said. “If they do non-monetary tariffs to keep us out of their market, then we do non-monetary barriers to keep them out of our market. We will take in trillions of dollars and create jobs like we have never seen before.”

The United States-Mexico-Canada Agreement, or USMCA, governs trade between the U.S. and its northern and southern neighbors. It went into force on July 1, 2020. Trump signed the deal. That agreement continued to allow for duty-free trading between the three countries for products largely made in North America.

U.S. goods and services trade with USMCA totaled an estimated $1.8 trillion in 2022. Exports were $789.7 billion and imports were $974.3 billion. The U.S. goods and services trade deficit with USMCA was $184.6 billion in 2022, according to the Office of the United States Trade Representative.