Business
For the record—former finance minister did not keep Canada’s ‘fiscal powder dry’
From the Fraser Institute
By Ben Eisen
In case you haven’t heard, Chrystia Freeland resigned from cabinet on Monday. Reportedly, the straw that broke the camel’s back was Prime Minister Trudeau’s plan to send all Canadians earning up to $150,000 a onetime $250 tax “rebate.” In her resignation letter, Freeland seemingly took aim at this ill-advised waste of money by noting “costly political gimmicks.” She could not have been more right, as my colleagues and I have written here, here and elsewhere.
Indeed, Freeland was right to excoriate the government for a onetime rebate cheque that would do nothing to help Canada’s long-term economic growth prospects, but her reasoning was curious given her record in office. She wrote that such gimmicks were unwise because Canada must keep its “fiscal powder dry” given the possibility of trade disputes with the United States.
Again, to a large extent Freeland’s logic is sound. Emergencies come up from time to time, and governments should be particularly frugal with public dollars during non-emergency periods so money is available when hard times come.
For example, the federal government’s generally restrained approach to spending during the 1990s and 2000s was an important reason Canada went into the pandemic with its books in better shape than most other countries. This is an example of how keeping “fiscal powder dry” can help a government be ready when emergencies strike.
However, much of the sentiment in Freeland’s resignation letter does not match her record as finance minister.
Of course, during the pandemic and its immediate aftermath, it’s understandable that the federal government ran large deficits. However, several years have now past and the Trudeau government has run large continuous deficits. This year, the government forecasts a $48.3 billion deficit, which is larger than the $40 billion target the government had previously set.
A finance minister committed to keeping Canada’s fiscal powder dry would have pushed for balanced budgets so Ottawa could start shrinking the massive debt burden accumulated during COVID. Instead, deficits persisted and debt has continued to climb. As a result, federal debt may spike beyond levels reached during the pandemic if another emergency strikes.
Minister Freeland’s reported decision to oppose the planned $250 onetime tax rebates is commendable. But we should be cautious not to rewrite history. Despite Freeland’s stated desire to keep Canada’s “fiscal powder dry,” this was not the story of her tenure as finance minister. Instead, the story is one of continuous deficits and growing debt, which have hurt Canada’s capacity to withstand the next fiscal emergency whenever it does arrive.
armed forces
Top Brass Is On The Run Ahead Of Trump’s Return
From the Daily Caller News Foundation
By Morgan Murphy
With less than a month to go before President-elect Donald Trump takes office, the top brass are already running for cover. This week the Army’s chief of staff, Gen. Randy George, pledged to cut approximately a dozen general officers from the U.S. Army.
It is a start.
But given the Army is authorized 219 general officers, cutting just 12 is using a scalpel when a machete is in order. At present, the ratio of officers to enlisted personnel stands at an all-time high. During World War II, we had one general for every 6,000 troops. Today, we have one for every 1,600.
Right now, the United States has 1.3 million active-duty service members according to the Defense Manpower Data Center. Of those, 885 are flag officers (fun fact: you get your own flag when you make general or admiral, hence the term “flag officer” and “flagship”). In the reserve world, the ratio is even worse. There are 925 general and flag officers and a total reserve force of just 760,499 personnel. That is a flag for every 674 enlisted troops.
The hallways at the Pentagon are filled with a constellation of stars and the legions of staffers who support them. I’ve worked in both the Office of the Secretary of Defense and the Joint Chiefs of Staff. Starting around 2011, the Joint Staff began to surge in scope and power. Though the chairman of the Joint Chiefs is not in the chain of command and simply serves as an advisor to the president, there are a staggering 4,409 people working for the Joint Staff, including 1,400 civilians with an average salary of $196,800 (yes, you read that correctly). The Joint Staff budget for 2025 is estimated by the Department of Defense’s comptroller to be $1.3 billion.
In contrast, the Secretary of Defense — the civilian in charge of running our nation’s military — has a staff of 2,646 civilians and uniformed personnel. The disparity between the two staffs threatens the longstanding American principle of civilian control of the military.
Just look at what happens when civilians in the White House or the Senate dare question the ranks of America’s general class. “Politicizing the military!” critics cry, as if the Commander-in-Chief has no right to question the judgement of generals who botched the withdrawal from Afghanistan, bought into the woke ideology of diversity, equity and inclusion (DEI) or oversaw over-budget and behind-schedule weapons systems. Introducing accountability to the general class is not politicizing our nation’s military — it is called leadership.
What most Americans don’t understand is that our top brass is already very political. On any given day in our nation’s Capitol, a casual visitor is likely to run into multiple generals and admirals visiting our elected representatives and their staff. Ostensibly, these “briefs” are about various strategic threats and weapons systems — but everyone on the Hill knows our military leaders are also jockeying for their next assignment or promotion. It’s classic politics
The country witnessed this firsthand with now-retired Gen. Mark Milley. Most Americans were put off by what they saw. Milley brazenly played the Washington spin game, bragging in a Senate Armed Services hearing that he had interviewed with Bob Woodward and a host of other Washington, D.C. reporters.
Woodward later admitted in an interview with CNN that he was flabbergasted by Milley, recalling the chairman hadn’t just said “[Trump] is a problem or we can’t trust him,” but took it to the point of saying, “he is a danger to the country. He is the most dangerous person I know.” Woodward said that Milley’s attitude felt like an assignment editor ordering him, “Do something about this.”
Think on that a moment — an active-duty four star general spoke on the record, disparaging the Commander-in-Chief. Not only did it show rank insubordination and a breach of Uniform Code of Military Justice Article 88, but Milley’s actions represented a grave threat against the Constitution and civilian oversight of the military.
How will it play out now that Trump has returned? Old political hands know that what goes around comes around. Milley’s ham-handed political meddling may very well pave the way for a massive reorganization of flag officers similar to Gen. George C. Marshall’s “plucking board” of 1940. Marshall forced 500 colonels into retirement saying, “You give a good leader very little and he will succeed; you give mediocrity a great deal and they will fail.”
Marshall’s efforts to reorient the War Department to a meritocracy proved prescient when the United States entered World War II less than two years later.
Perhaps it’s time for another plucking board to remind the military brass that it is their civilian bosses who sit at the top of the U.S. chain of command.
Morgan Murphy is military thought leader, former press secretary to the Secretary of Defense and national security advisor in the U.S. Senate.
Business
Comparing four federal finance ministers in moments of crisis
From the Fraser Institute
By Grady Munro, Milagros Palacios and Jason Clemens
The sudden resignation of federal finance minister (and deputy prime minister) Chrystia Freeland, hours before the government was scheduled to release its fall economic update has thrown an already badly underperforming government into crisis. In her letter of resignation, Freeland criticized the government, and indirectly the prime minister, for “costly political gimmicks” and irresponsible handling of the country’s finances and economy during a period of great uncertainty.
But while Freeland’s criticism of recent poorly-designed federal policies is valid, her resignation, in some ways, tries to reshape her history into that of a more responsible finance minister. That is, however, ultimately an empirical question. If we contrast the performance of the last four long-serving (more than three years) federal finance ministers—Paul Martin (Liberal), Jim Flaherty (Conservative), Bill Morneau (Liberal) and Freeland (Liberal)—it’s clear that neither Freeland nor her predecessor (Morneau) were successful finance ministers in terms of imposing fiscal discipline or overseeing a strong Canadian economy.
Let’s first consider the most basic measure of economic performance, growth in per-person gross domestic product (GDP), adjusted for inflation. This is a broad measure of living standards that gauges the value of all goods and services produced in the economy adjusted for the population and inflation. The chart below shows the average annual growth in inflation-adjusted per-person GDP over the course of each finance minister’s term. (Adjustments are made to reflect the effects of temporary recessions or unique aspects of each minister’s tenure to make it easier to compare the performances of each finance minister.)
Sources: Statistics Canada Table 17-10-0005-01, Table 36-10-0222-01; 2024 Fall Economic Statement
By far Paul Martin oversaw the strongest growth in per-person GDP, with an average annual increase of 2.4 per cent. Over his entire tenure spanning a decade, living standards rose more than 25 per cent.
The average annual increase in per-person GDP under Flaherty was 0.6 per cent, although that includes the financial recession of 2008-09. If we adjust the data for the recession, average annual growth in per-person GDP was 1.4 per cent, still below Martin but more than double the rate if the effects of the recession are included.
During Bill Morneau’s term, average annual growth in per-person GDP was -0.5 per cent, although this includes the effects of the COVID recession. If we adjust to exclude 2020, Morneau averaged a 0.7 per cent annual increase—half the adjusted average annual growth rate under Flaherty.
Finally, Chrystia Freeland averaged annual growth in per-person GDP of -0.3 per cent during her tenure. And while the first 18 or so months of her time as finance minister, from the summer of 2020 through 2021, were affected by the COVID recession and the subsequent rebound, the average annual rate of per-person GDP growth was -0.2 per cent during her final three years. Consequently, at the time of her resignation from cabinet in 2024, Canadian living standards are projected to be 1.8 per cent lower than they were in 2019.
Let’s now consider some basic fiscal measures.
Martin is by far the strongest performing finance minister across almost every metric. Faced with a looming fiscal crisis brought about by decades of deficits and debt accumulation, he reduced spending both in nominal terms and as a share of the economy. For example, after adjusting for inflation, per-person spending on federal programs dropped by 5.9 per cent during his tenure as finance minister (see chart below). As a result, the federal government balanced the budget and lowered the national debt, ultimately freeing up resources via lower interest costs for personal and business tax relief that made the country more competitive and improved incentives for entrepreneurs, businessowners, investors and workers.
*Note: Freeland’s term began in 2020, but given the influence of COVID, 2019 is utilized as the baseline for the overall change in spending. Sources: Statistics Canada Table 17-10-0005-01, Table 36-10-0130-01; Fiscal Reference Tables 2024; 2024 Fall Economic Statement
Flaherty’s record as finance minister is mixed, in part due to the recession of 2008-09. Per-person program spending (inflation adjusted) increased by 11.6 per cent, and there was a slight (0.6 percentage point) increase in spending as a share of the economy. Debt also increased as a share of the economy, although again, much of the borrowing during Flaherty’s tenure was linked with the 2008-09 recession. Flaherty did implement tax relief, including extending the business income tax cuts started under Martin, which made Canada more competitive in attracting investment and fostering entrepreneurship.
Both Morneau and Freeland recorded much worse financial performances than Flaherty and Martin. Morneau increased per-person spending on programs (inflation adjusted) by 37.1 per cent after removing 2020 COVID-related expenditures. Even if a more generous assessment is used, specifically comparing spending in 2019 (prior to the effects of the pandemic and recession) per-person spending still increased by 18.1 per cent compared to the beginning of his tenure.
In his five years, Morneau oversaw an increase in total federal debt of more than $575 billion, some of which was linked with COVID spending in 2020. However, as multiple analyses have concluded, the Trudeau government spent more and accumulated more debt during COVID than most comparable industrialized countries, with little or nothing to show for it in terms of economic growth or better health performance. Simply put, had Morneau exercised more restraint, Canada would have accumulated less debt and likely performed better economically.
Freeland’s tenure as finance minister is the shortest of the four ministers examined. It’s nonetheless equally as unimpressive as that of her Trudeau government predecessor (Morneau). If we use baseline spending from 2019 to adjust for the spike in spending in 2020 when she was appointed finance minister, per-person spending on programs by the federal government (inflation adjusted) during Freeland’s term increased by 4.1 per cent. Total federal debt is expected to increase from $1.68 trillion when Freeland took over to an estimated $2.2 trillion this year, despite the absence of a recession or any other event that would impair federal finances since the end of COVID in 2021. For some perspective, the $470.8 billion in debt accumulated under Freeland is more than double the $220.3 billion accumulated under Morneau prior to COVID. And there’s an immediate cost to that debt in the form of $53.7 billion in expected federal debt interest costs this year. These are taxpayer resources unavailable for actual services such as health care.
Freeland’s resignation from cabinet sent shock waves throughout the country, perhaps relieving her of responsibility for the Trudeau government’s latest poorly-designed fiscal policies. However, cabinet ministers bear responsibility for the performance of their ministries—meaning Freeland must be held accountable for her previous budgets and the fiscal and economic performance of the government during her tenure. Compared to previous long-serving finances ministers, it’s clear that Chrystia Freeland, and her Trudeau predecessor Bill Morneau, failed to shepherd a strong economy or maintain responsible and prudent finances.
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