“The Canadian economy,” boasts the Trudeau government’s latest budget, “is doing better than expected.” Who expected it to do how much worse is left unsaid. But as the budget notes defiantly: “Our economy is growing.” Why, in fourth-quarter 2023, real GDP grew by – wait for it – “1 per cent on an annualized basis.” Barely moving, but … better than expected!
It remains unclear whether the government is unaware of how badly Canada’s economy has actually been performing, or whether it does not care, or whether it just does not know what to do about it. Possibly, it is a little of all three.
But faced with what is now generally conceded to be a growth crisis – an economy that, in per capita terms, has been shrinking for several quarters, stagnating for several years, and losing ground to other developed economies for several decades – the government has produced yet another budget with no serious proposals to address it.
Certainly, there is plenty in the budget’s 430 pages addressed to everything else. As with its previous budgets or fall economic statements, the government has seized the opportunity afforded by the passage of a few months to add tens of billions annually to spending, even as it continues to pretend that spending is under control.
The trick, as I’ve tried to show on previous occasions, is to issue a series of multiyear projections in which spending always slopes ever so gently up, hoping no one will notice when the whole curve is periodically, and violently, wrenched skyward. The chart accompanying this column shows the results. Spending over the next several years is now projected to average $16-billion annually more than the track laid out in Budget 2023, and nearly $40-billion a year more than in Budget 2022.
Or let’s go all the way back to Budget 2019. Had that document projected spending for fiscal 2024, not at $369-billion, but at its latest estimate of $458-billion – an annual growth rate of 7.3 per cent, versus the 2.7 per cent forecast – it might have run into some considerable opposition. But as it is it barely registers.
And yet, the government is also able to claim that it has held fast to its latest set of self-assigned “fiscal anchors”: a declining debt-to-GDP ratio (after last year’s increase) and a deficit below 1 per cent of GDP (as of 2026-27).
Assume that these projections are of any greater worth than all previous. How was this accomplished? Not, as we can see, because of some new commitment to fiscal discipline. Rather, it was by the simple expedient of raising taxes: notably, by increasing the inclusion rate on capital gains of more than $250,000, from one-half to two-thirds, which the government projects will yield nearly $20-billion in additional revenue over five years.
Without this windfall, I calculate the deficit in the current fiscal year would be nearly $47-billion, versus the $40-billion forecast, leaving the debt-to-GDP ratio slightly higher, not lower, than last year’s 42.1 per cent. It’s not the end of the world either way, of course. But it is hardly the sort of thing a government would do if it were actually interested in encouraging investment, productivity or growth.
(Or fairness, for that matter: The reason capital gains are not taxed at the full rate is in recognition of the tax already paid on the same income at the corporate level, a fact the budget somehow neglects to mention.)
Indeed, there is not a single measure in the budget aimed at boosting investment generally – as opposed to the usual slew of measures aimed at diverting investment into the government’s favoured sectors: artificial intelligence, “clean” technologies and so on.
Whatever their individual merits or demerits (we seem no closer to becoming a world power in AI, for all the money the government is throwing at it, than we are in electric-vehicle batteries), the notion that you can put a $3-trillion economy on a measurably higher growth track – let alone the kind of radical acceleration needed, in the face of Canada’s accumulating fiscal challenges – with a handful of tax credits, subsidies and state-directed investment funds is simply comical.
A similar sense of inadequacy pervades the document. There are some useful-sounding measures to increase the supply of housing (and some not-so-useful measures to increase the demand) but nothing like on the scale required. Defence spending will get a boost, but nowhere near as much, or as soon, as the gathering world security crisis demands.
If you have a hundred priorities, it is said, you have none. Having spread itself so thin, budget after budget, on less urgent matters, the government finds itself without the capacity to act on the two or three things that really demand its attention. Assuming it even had any intention of doing so.
Andrew Coyne