Last Friday, the prime minister fired his finance minister, Chrystia Freeland, who shocked the country by resigning from cabinet on Monday, hours before the fall economic statement (FES) was set to be tabled. Yet obvious tension between the two made the resignation less surprising, especially since the FES abandoned any lingering pretense of fiscal prudence, along with Freeland’s primary fiscal guardrail — a cap on the 2023-24 deficit at $40.1 billion.
Freeland’s leadership ambitions are likely dead (although her stated intention to run in the next election suggests she has not forsaken all hope), and the prime minister lost any semblance of managerial competence in Monday’s chaos.
The fact that Freeland was dragged kicking and screaming to her final capitulation does not mitigate her responsibility. She could have resigned earlier rather than playact as an independent minister of finance. That would have spared her the final indignity of being cast out with an offer of a lower-profile portfolio.
According to the FES, the 2023-24 deficit will be a debilitating $61.9 billion, 55 per cent higher than promised. Parliamentary Budget Officer Yves Giroux had previously expected the federal government to run a $46.8-billion deficit in 2023-24. By blowing past that number, Prime Minister Justin Trudeau confirmed he has no intention of containing his profligacy.
In her letter of resignation, Freeland labelled as “costly political gimmicks” the two-month GST/HST pause on some items and the $250 workers’ benefit cheques, which is a devastating criticism of her government’s policies and the prime minister.
According to a recent poll, 70 per cent of Canadians believe the pre-Christmas gift was purely an electoral tactic, so it turned out to be both bad policy and bad politics — i.e., another expensive failure. As a result, there was no mention of the cash give-away in the FES.
The scheme signalled that income redistribution takes precedence over economic growth, which is what this government is all about, with predictable economic and political consequences.
Freeland may publish a self-serving memoir, but she will have difficulty doing a Bill Morneau exculpatory mea culpa, claiming she was a tortured soul trying her best to inject sanity into budget discussions. When things are out of control for so long, the inescapable public impression will be that she went along with unbridled spending because she agreed with it — or, at the very least, enjoyed the perks of the job too much to leave.
We don’t know if Dominic LeBlanc, who was sworn in as finance minister late in the day on Monday, is just a placeholder in that role. Trudeau may still try to lure Mark Carney to board the sinking ship, dangling the dubious opportunity to become first mate of the Titanic after it hit an iceberg, while the captain eyes the lifeboats.
Trudeau wants Carney’s financial credibility, but it will be hard for the former Bank of Canada governor to maintain his credibility if he’s forced to advocate for policies that are bringing the country to ruin, as he inevitably will be.
In any case, Carney is a quintessential Davos and Laurentian elitist with impeccable climate-alarmism credentials. Although he’ll feel right at home in Trudeau’s government, without fundamental policy changes, he can do little to improve the lives of Canadians.
In addition to classic tax-and-spend socialism, the economic update looks very much like the death throes of a party that’s 23 percentage points behind in the polls and willing to spend other people’s money to save the furniture, irrespective of the harm caused to the economy and the crushing debt imposed on the next generation.
Trudeau loves to talk about sustainability, but the government’s fiscal policy is the antithesis of that defensible goal. Freeland thought Canadians were deluded by a “vibecession,” but our crushing debt is more than just a vibe: taxpayers will have to pay $53.7 billion in carrying costs this year, and the cost is only going up.
Deficits are a drag on economic growth and, by focusing on consumption rather than infrastructure, they add to inflation and undermine productivity, an overarching problem resulting in a steady decline in per capita GDP.
Deficits also impact economic stability and compromise the government’s capacity to stimulate the economy during an economic downturn, increase military expenditures or respond to shocks, like the potential imposition of a 25 per cent tariff by the incoming Trump administration. Moreover, out-of-control spending can compromise Canada’s credit rating, which would drive up interest rates on the debt.
It all goes back to Justin Trudeau’s 2015 campaign promise to generate “modest” $10-billion deficits and return to balance by the end of his first term. Conservatives did not believe him and most voters did not seem to care. Now they do, and the fall economic statement missed the zeitgeist completely.
It is hard to see how Trudeau can survive this latest debacle, since the pressure on NDP Leader Jagmeet Singh to turn on him will be overwhelming and calls for his resignation are coming from within the Liberal party and across the country. We are witnessing the collapse of a government in real time.
National Post
Joe Oliver was minister of natural resources and minister of finance in the Harper government.