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Fraser Institute

Federal government should have taken own advice about debt accumulation

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From the Fraser Institute

Authors: Grady Munro Jake Fuss

In 2024/25 the federal government now expects to pay $54.1 billion in debt interest, or $1,331 per Canadian, which is $2.0 billion more than it plans to spend on health care transfers to provinces.

In the foreword of the Trudeau government’s recent budget, Finance Minister Chrystia Freeland declared that, “it would be irresponsible and unfair to pass on more debt to the next generations.” Minister Freeland is absolutely right—if only she had listened to her own advice.

Fairness was the purported theme of this federal budget and nearly every new policy is presented as something that will help make life fairer for Canadians—especially younger generations. But the glaring contradiction is that partly due to all of the new spending on these policies, the Trudeau government is doing the very thing it admits is “unfair” and saddling future generations with hundreds of billions in added debt.

By 2027/28, the Trudeau government plans to add $395.6 billion to the total (gross) amount of debt held federally, which is $180.0 billion more than it planned to add just last spring. Overall, gross debt is projected to increase by nearly 20 per cent over the next four years. Adjusting for population growth and inflation during this period, by the end of 2027/28 every Canadian will be responsible for $2,301 more in gross federal debt than they are currently.

Much of this added debt stems from the introduction of new programs, which have caused federal program spending (total spending minus debt interest) over the next four years to be an expected $77.2 billion higher than was forecasted last spring. And though the Trudeau government will increase capital gains taxes to try and pay for this new spending, much of the new spending will still be financed through borrowing. Indeed, combined deficits from 2024/25 to 2027/28 are $44.7 billion higher than forecasted in last year’s budget, and there is no balanced budget in sight at all.

The problem with accumulating substantial amounts of debt, and why Minister Freeland is right when she asserts that it’s “irresponsible and unfair,” is that a growing government debt burden imposes costs on Canadians now and in the future.

One of the most important consequences of government debt are debt interest payments. These interest payments represent taxpayer dollars that don’t go towards any programs or services for Canadians, and have grown to impose a significant burden on federal finances. Specifically, in 2024/25 the federal government now expects to pay $54.1 billion in debt interest, or $1,331 per Canadian, which is $2.0 billion more than it plans to spend on health care transfers to provinces.

While debt interest costs represent a more immediate impact, debt accumulated today must also ultimately be paid for by future generations, again in the form of higher taxes. In fact, research suggests that this effect may be disproportionate, with one dollar borrowed today needing to be paid back by more than one dollar in future taxes.

One study estimates that Canadians aged 16 can expect to pay the equivalent of $29,663 over their lifetime in additional personal income taxes as a consequence of rising federal debt. Older age groups shoulder a much smaller burden in comparison. A 65-year-old can expect to pay $2,433 over their lifetime in additional personal income taxes due to rising federal debt.

The outsized burden of federal debt borne by younger generations of Canadians is hardly what any reasonable person would consider “fair.”

For all its talk about fairness and helping the next generation of Canadians, the Trudeau government’s incessant spending and substantial debt accumulation will simply result in young Canadians paying disproportionately higher taxes in the future. Does that seem fair to you?

Fraser Institute

Young people increasingly embrace conservatism

Published on

From the Fraser Institute

By Philip Cross

One of the most intriguing recent political trends in North America is the growing support for conservative parties among young people. Once a reliable source of overwhelming support for the elections of Barack Obama and Justin Trudeau, a rising share of the youth vote is trending towards candidates such as Donald Trump and Pierre Poilievre. Young people voting for conservative politicians could be dismissed as just a backlash against failed economic policies, but there are indications of a more fundamental shift to embracing at least some conservative values.

Canadian youths now support the Conservatives more than any other party, a development not seen in decades, if ever. According to an Abacus poll, 36 per cent of Canadians between 18 and 29 years old would support the Conservatives versus 27 per cent for the NDP and a paltry 19 per cent for the Liberals. Nor is support for Poilievre’s Conservatives just a backlash from the failing fortunes of youths under the Trudeau regime. An Environics polls found young people in Canada would vote for Trump more than any other age group: 28 per cent of Canadians between 18 and 34 years old prefer Trump versus 13 per cent for those 55 and over and 27 per cent between 35 and 54.

Faced with a health-care system that’s clearly broken in Canada, youths have fewer qualms about involving the private sector than older generations who were raised to believe that publicly-provided health care was a fundamental Canadian value. A recent poll by Leger published in Le Journal de Quebec found that 44 per cent of youths 18 to 34 years old support private delivery of health-care services, the mirror image of the views of people 55 and over who oppose it. Meanwhile, youths in the United States identify as having more conservative views than their parents even more than millennials did 20 years ago, with the largest shift among young men.

Rising support for conservative politicians and initiatives among young people reveals several trends. Most obviously is that many of today’s youths reject the radical woke agenda espoused by a small but vocal minority. When confronted with the reality of an economy that’s not generating the jobs, incomes and housing they desire, these youths prioritize results over ideology, especially immigrant youths who came to Canada for economic reasons. The importance attached to results is driving many youths even to question the usefulness of democracy. In his 2023 book The Fourth Turning Is Here, historian Neil Howe cites polls that one in four young Americans would prefer a dictatorial president unconstrained by Congress while only one in 10 Americans over age 65 agree.

Howe’s analysis is based on the proposition that historical movements move in cyclical ebbs and flows rather than by extrapolating straight lines. This is intuitively easy for me to understand after a career specializing in the study of business cycles. It’s well known that there are regular cycles in financial markets and the economy, partly because long periods of prosperity and bullish financial conditions lull the next generation into under-estimating the risks of a downturn. This complacency inevitably precipitates the sort of risky decisions that trigger a slump. As economist Hyman Minsky wrote, “Success breeds a disregard of the possibility of failure… Stability leads to instability. The more stable things become and the longer they are stable, the more unstable they will be when the crisis hits.”

Cyclical analysis is also useful in understanding political trends instead of just assuming history continues on a linear trajectory. For example, for years it seemed inevitable that support for Quebec separatism would rise inexorably until independence was achieved. Instead, support peaked during the 1995 referendum then steadily evaporated as younger generations had more pressing priorities than independence.

We see the same cyclical phenomenon play out in the political preferences of today’s youths, even if conservatives still represent only a minority and their longer-term commitment to conservative values remains uncertain. Instead of reinforcing the left-wing bias of youths that helped propel Obama and Trudeau to power, youths are reacting against the status quo that ignores their pocket-book concerns. These shifting attitudes of young people could help reshape North America’s political landscape in ways few would have thought possible a decade ago.

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Alberta

Lesson for Ottawa—don’t bite the hand that feeds you

Published on

From the Fraser Institute

By Tegan Hill

The Alberta government has launched a campaign to inform Canadians about the negative impacts of the federal government’s cap on greenhouse gas (GHG) emissions in the oil and gas sector, which exempts the other three-quarters of the economy that emit including transportation, buildings and heavy industry.

According to Alberta Premier Danielle Smith, the cap will “kill jobs” and lead to “economic and societal decline” for all Canadians—and she’s right. Any policy that damages Alberta’s economy comes with consequences for all of Canada.

Of course, this isn’t the first Trudeau policy to damage the sector. The list includes Bill C-69 (which imposes complex, uncertain and onerous review requirements on major energy projects), Bill C-48, (which bans large oil tankers off British Columbia’s northern coast and limits access to Asian markets), “clean fuel standard” regulations, numerous “net-zero” targets, and so on.

Again, while these policies disproportionately impact Albertans, they have consequences for all Canadians from coast to coast because of Alberta’s role in the federation. In our current system, Ottawa collects various taxes from Canadians across the country and then redistributes the money for programs including equalization and employment insurance.

For perspective, from 2007 to 2022 (the latest period of available data), Albertans contributed $244.6 billion more in taxes and other payments to the federal government than they received in federal spending—more than five times as much as British Columbians or Ontarians. The remaining seven provinces received more federal spending than they contributed to federal revenues. In other words, Albertans are by far the largest net contributor to Ottawa’s coffers.

Albertans’ large net contribution reflects the province’s comparatively young population (fewer retirees), higher rates of employment, higher average incomes and relatively strong economy.

Alberta’s relative economic strength isn’t new. From 1981 to 2022, the province had the highest annual average economic growth rate in Canada. In 2022, Alberta accounted for 17.9 per cent of Canada’s total economic growth despite being home to just 11.6 per cent of the country’s population. That same year, Alberta contributed nearly one in every five private-sector jobs created in Canada. In fact, Alberta was one of only two provinces (alongside Nova Scotia) where private-sector employment growth (including self-employment) exceeded government-sector employment growth over the last five years (2019 to 2023).

Alberta’s prosperity, which helps finance other provinces, may help explain why 56,245 more Canadian residents moved to Alberta than left it in 2022—a much higher net inflow than in any other province. For decades, Alberta has provided economic opportunities for Canadians from other provinces willing to relocate.

Albertans continue to contribute more to the federation than Canadians in other provinces due to Alberta’s relatively strong and prosperous economy. And Canadians benefit from the economic opportunities Alberta provides. With this in mind, the Trudeau government should stop imposing economically damaging policies on the province—as it costs not just Albertans but all Canadians.

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