Federal government should have taken own advice about debt accumulation

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?

Authors: Grady Munro Jake Fuss

Related Topics:#2024FederalBudget #FederalDebt #FederalDebtInterestPayments #FraserInstitute #GradyMunro #JakeFuss

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Energy

Next prime minister should swiftly dismantle Ottawa’s anti-energy agenda

Published on January 23, 2025

Todayville

From the Fraser Institute

By Kenneth P. Green

Justin Trudeau’s imminent exit from office may mark the beginning of the end of a 10-year war on Canada’s energy sector, and by extension, Canada’s economy.

Canada is the world’s fourth-largest oil producer, currently supplying 6 per cent of global production. Canada is the fifth-largest producer of natural gas, supplying 5 per cent of global demand. The energy sector (oil, gas, electricity) constitutes more than 10 per cent of Canada’s total gross domestic product (GDP). In 2023, the latest year of available data, the energy sector provided, directly and indirectly, almost 700,000 jobs or 3.5 per cent of all jobs in Canada. And Canadian energy exports totalling $200 billion comprised 28 per cent of all Canadian exported goods.

But however vast and vital Canada’s energy sector is our wellbeing, Prime Minister Trudeau worked tirelessly to restrain, restrict, diminish and ultimately “phase out” Canada’s fossil fuel industries. Here are some of the highlights of his war on Canada’s energy sector.

In 2017, Trudeau introduced Bill C-48, which restricts oil tankers off Canada’s west coast and limits the ability of Canada’s oilsands sector to export product to new markets, keeping Canada’s energy resources trapped in a discount-price U.S. market. Also in 2017, much to the fury of many Albertans, Trudeau announced his intention to phase out oilsands production, the foundation of Alberta’s prosperity.

In 2018, Trudeau introduced Bill C-69, which tightened Canada’s environmental assessment process for major infrastructure projects and made the process of obtaining government permission for major energy projects more costly, time-consuming and arbitrary, thus increasing uncertainty across the energy sector. And he introduced the carbon tax despite strenuous opposition by Canada’s energy sector and energy-producing provinces.

In 2020, Trudeau launched his broadest and most intense regulatory crusade against Canada’s energy sector, introducing Bill C-12, which committed Canada to reach “net-zero” emissions of greenhouse gasses by 2050. Net-zero means Canada cannot emit more greenhouse gases via energy production and consumption than is taken out of the air by natural processes and the ecosystem. This would require vastly reduced production and consumption of fossil fuels in Canada, with consequences for the energy sector’s productivity and employment potential moving toward 2050.

In 2023, Trudeau attacked fossil fuel use in the transportation sector by mandating that all new cars sales be electric vehicles by 2035. And he released draft “clean electricity regulations” to phase out the use of fossil fuels in electricity generation by the year 2050.

During his time as prime minister, Trudeau attacked Canada’s energy sector, with eliminationist language and onerous regulations meant to essentially phaseout a major supplier of economic productivity and employment in Canada, to the great detriment of Canadians.

Hopefully, the next prime minister will reject Trudeau’s anti-energy agenda and have the will and ability to rescind the many damaging laws and regulations that that the Trudeau government has inflicted on a vital sector of the Canadian economy.

Kenneth P. Green

Senior Fellow, Fraser Institute

Economy

Number of newcomers to Canada set to drop significantly

Published on January 22, 2025

Todayville

From the Fraser Institute

By Jock Finlayson

Late last year, Statistics Canada reported that Canada’s population reached 41.5 million in October, up 177,000 from July 2024. Over the preceding 12 months, the population rose at a 2.3 per cent pace, indicating some deceleration from previous quarters. International migration accounts for virtually 100 per cent of the population gain. This includes a mix of permanent immigrants and large numbers of “non-permanent residents” (NPRs) most of whom are here on time-limited work or student visas.

The recent easing of population growth mainly reflects a slowdown in non-permanent immigration, after a period of increases with little apparent oversight or control by government officials. The dramatic jump in NPRs played a key role in pushing Canada’s population growth rate to near record levels in 2023 and the first half of 2024.

Amid this demographic surge, a public and political backlash developed, due to concerns that Canada’s skyrocketing population has aggravated the housing affordability and supply crisis and put significant pressure on government services and infrastructure. In addition, the softening labour market has been unable to create enough jobs to employ the torrent of newcomers, leading to a steadily higher unemployment rate over the last year.

In response, the Trudeau government belatedly announced a revised “immigration plan” intended to scale back inflows. Permanent immigration is being trimmed from 500,000 a year to less than 400,000. At the same time, the number of work and study visas will be substantially reduced. Ottawa also pledges to speed the departure of temporary immigrants whose visas have expired or will soon.

Remarkably, NPRs now comprise 7.3 per cent of the country’s population, a far higher share than in the past. The government has promised to bring this down to 5 per cent by 2027, which equates to arranging for some two million NPRs to depart when their visas expire. There are doubts that our creaking immigration and border protection machinery can deliver on these commitments. Many NPRs with expired visas may seek to stay. That said, the total number of newcomers landing in Canada is set to drop significantly.

According to the government, this will cause the country’s total population to shrink in 2025-2026, something that has rarely happened before.

Even if Ottawa falls short of hitting its revised immigration goals, a period of much lower population growth lies ahead. However, this will pose its own economic challenges. A fast-expanding population has been the dominant factor keeping Canada’s economy afloat over the last few years, as productivity—the other source of long-term economic growth—has stagnated and business investment has remained sluggish. It’s also important to recognize that per-person GDP—a broad measure of living standards—has been declining as economic growth has lagged behind Canada’s rapid population growth. Now, as the government curbs permanent immigrant numbers and sharply reduces the pool of NPRs, this impetus to economic growth will suddenly diminish.

However, Canada will continue to have high levels of immigration compared to peer jurisdictions. The lowered targets for permanent immigration—395,000 in 2025, followed by 380,000 and 365,000 in the following two years—are still above pre-pandemic benchmarks. This underscores the continued importance of immigration to Canada’s economic and political future.

Instead of obsessing about near-term targets, policymakers should think about how to ensure that immigration can advance Canada’s prosperity and provide benefits to both the existing population and those who come here.