Just three more years of deficit to invest in growing the Canadian economy, and then we’ll get right back to balance.
If Mark Carney’s pledge sounds like something you’ve heard before, that’s because Justin Trudeau made a very similar commitment a mere ten years ago.
To refresh your memory, Canada was undergoing what is called a technical recession during the 2015 election campaign.
Between 2014 and 2015, the price of a barrel of oil fell from near US$99to slightly below US$43 in the span of a few months. The effect on the energy industry was sufficient to shrink Canada’s economy during two consecutive quarters – meeting the definitional threshold for a recession.
Faced with this uncertain economic situation, Justin Trudeau promised an ambitious infrastructure investment program to kickstart Canada’s economy, an initiative that would, he insisted, be followed by a return to balanced budgets by 2019.
After the election, he kept the first part of his promise in spades, running deficits nearly twice as large as what he had specified during the race.
Ottawa spent so much, in fact, that before Trudeau’s tenure as prime minister ends on March 9, Canada’s debt will have doubled from $693.8 billion to $1.4 trillion under his watch.
Meanwhile, the interest payments on our debt have more than doubled from $25.6 billion to an estimated $53.7 billion this year. Unfortunately, there is nothing to indicate that this debt, or the money we spend on interest, will be going down anytime soon.
In other words, we spent a ton of money and ran up debt at record rates to get our economy growing again. This year alone, the federal government expects to spend $48.3 billion more than it collects in revenues. Meanwhile, Canadians are still waiting patiently for that return to balanced budgets.
So how’s that economic growth coming along, you ask?
To assess an economy’s performance, economists generally use a metric called “real GDP per capita.”
This takes into account the value of all final goods and services produced in Canada — everything from a haircut to a new car — and divides that sum by the total number of inhabitants. This figure is then adjusted for inflation to allow for proper comparison across the years.
When the Trudeau government came into office at the end of 2015, our economy was producing $57,491 per person (in 2017 dollars).
Today, nine years later, our economy is producing $58,951 per person (in those same 2017 dollars).
Boiled down, this means that Canadians are now a whopping 2.5 per cent richer, on average, then when Trudeau took office almost ten years ago. Wow.
It would seem that the promised growth, much like the return to balanced budgets, somehow failed to materialize.
This is because there are quite a few different factors that can affect economic growth.
While the government attempted to stimulate growth artificially by borrowing and spending money, tax hikes and new bureaucratic and regulatory hurdles countervailed this by slowing down private investment.
When we account for inflation, we find that the level of investment per person across all sectors of the economy (excepting the public sector) has fallen by 8%.
One recent example of this replacement of private funds by taxpayers’ funds would be the Trans Mountain pipeline expansion project.
While its former owner, Kinder Morgan, was initially willing to cover the costs of the expansion project, a complex and politically charged approval process ultimately resulted in both the pipeline and the project being sold to the federal government in 2018.
Six years after the project was first announced, its developer was no longer willing to build it subject to the growing list of ever more costly changes demanded by federal and provincial governments.
The result has been that, instead of the private sector bearing the costs, every Canadian taxpayer ended up forking over money instead, so this critical piece of infrastructure could get built in order to help diversify our energy export markets.
While Mark Carney may use different words to promote them, his plans to grow Canada’s economy with government spending and deficits are eerily similar to those put forward ten years earlier by the very prime minister he is now hoping to replace.
If Carney just adopts the same policies, why would we expect the results — or lack thereof — to be any different?
– Renaud Brossard is Vice President of Communications at the MEI, a think tank with offices in Montreal, Ottawa and Calgary.