Hours after Chrystia Freeland resigned as finance minister and left cabinet on Monday, the Trudeau government presented its 2024 Fall Economic Statement (FES) to the House of Commons. The statement provides an update on government finances and the budget plan the government introduced earlier this year.
Once again, this government has dramatically violated its own fiscal rules.
The three fiscal rules, reaffirmed in this year’s budget, are as follows: Maintain the 2023-24 deficit at or below $40.1 billion; lower the debt-to-Gross Domestic Product (GDP) ratio in 2024-25 (relative to the 2023 FES) and keep it declining thereafter; and maintain a declining deficit-to-GDP ratio in 2024-25 while keeping deficits below 1% of GDP in 2026-27 and future years.
Fiscal rules are necessary to prevent the deterioration of government finances, particularly with regard to national debt. For example, in the 1990s, after balancing the federal budget for the first time in nearly 30 years, then-prime minister Jean Chretien required the government to run annual surpluses to reduce the national debt.
Establishing fiscal rules and then disregarding them a year later, however, makes the exercise meaningless. Unfortunately, the Trudeau government has abandoned its own rules whenever convenient.
After taking office in 2015, the Trudeau government announced its first fiscal rule — balancing the budget by the 2019-20 fiscal year. But when the government realized it would not achieve this goal, rather than take steps (e.g. reduce spending) to get back on track, the government abandoned its original rule in favour of a new rule — reducing Canada’s debt-to-GDP ratio. But again, in 2019 the government violated this rule before the pandemic, as debt-to-GDP ticked upwards from 30.8% to 31.0%.
This brings us back to Monday’s FES, which reveals the government ran a $61.9-billion deficit in 2023-24 — $21.8 billion more than it had committed to last year. This astounding failure to limit the deficit is due to the government’s inability to control spending. Indeed, annual program spending (total spending minus debt interest) in 2023-24 was $24.4 billion higher than the government had outlined in last year’s FES.
Revenues were also up $3.3 billion compared to last year’s FES, meaning the deficit would have been lower than $40.1 billion originally projected had the government simply stuck to its plan for spending.
The government is hanging on to its other fiscal rules — which are relatively soft — by a thread. So merely abiding by its other soft fiscal rules does not mean the government is effectively managing public finances. Per-person spending and debt are at or near-record highs and the Trudeau government has consistently borrowed large sums of money throughout its tenure. The resignation of Freeland as finance minister has simply increased the level of uncertainty in Ottawa to heights not seen in many years.
Monday’s fiscal update reveals the Trudeau government has smashed a key fiscal rule it established just one year ago. Clearly, this government has no intention of responsibly managing Canada’s finances or staying accountable to Canadians.
— Jake Fuss and Grady Munro are fiscal policy analysts at the Fraser Institute