Prime Minister Mark Carney’s spring economic update last month showed the federal deficit had fallen more than $11 billion from the $78.3 billion forecast in last November’s federal budget. While that sounds like good news, the deficit in the coming year will still be $66.9 billion, the largest in Canadian history, surpassing even the largest Trudeau deficits.
However, what Canadians heard less of was why the deficit shrank. It was not due to fiscal prudence or spending cuts. Instead, the $11.4-billion difference resulted from higher oil revenues spurred by Donald Trump’s attacks on Iran and higher-than-expected taxes.
Spending Surge
Mentioned least of all was the rise in federal spending — nearly $35 billion between last November and next November. The new Parliamentary Budget Officer, Annette Ryan, stated that changes in government promises in just the past five months, including Prime Minister Mark Carney’s sovereign wealth fund (the Canada Strong Fund), had added $54.5 billion in costs since the budget. That amounts to $10 billion per month in new and promised spending.
Debt Servicing Risks
If this level of spending and debt accumulation continues for a full four years, by 2030, Ottawa will be spending more than $80 billion a year just to service the national debt. That represents 13 cents on every dollar the federal government brings in, more than double the rate four years ago. And that is only if interest rates do not spike again. If the federal government had to pay closer to seven percent for its renewing debt, the annual cost could top $100 billion or even $110 billion.
Prime Minister Carney, a former central banker in Canada and Britain, surely understands that such levels of debt servicing will squeeze out private borrowers and choke the economy.
Fiscal Behavior Worse
While the tone of the Carney government may be less irritating than the Trudeau government’s — less sanctimonious, virtue-signalling, and anti-business — the fiscal behavior is worse and the economic performance no better. For instance, Carney no more wants a second pipeline from Alberta to the West Coast than Trudeau did. He is just better at disguising his distaste for such a project.
