Federal elections: extravagant government spending?
Each party assesses the situation in its own way and develops its own interpretation. We’ll try to provide a clear look at all this. Is the deficit really too high? Is the federal government providing adequate funding for social programs? What’s the situation with federal health transfers?
Since 2015, the federal government has been reporting budget deficits. Starting off with meagre surpluses when they came to power, the Liberals decided to open the government coffers even if it meant plunging the country back into debt. Is it accurate to describe the current budgetary situation as out of control?
The 2019-2020 budget tabled last winter forecast a deficit of $19.8 billion for the current year. To contextualize this seemingly astronomical amount, it’s important to bear in mind that this deficit represents only 0.9% of Canada’s GDP. In comparison, the public debt in the US has risen to 3.9% of that country’s GDP. According to projections until 2023-2024, the burden of the federal deficit for the economy should drop to 0.4%, which is not too worrisome.
What really counts is the way the federal debt is evolving. It is not at all catastrophic to report a deficit if the debt is kept under control. In any event, the government apparatus is managing to finance its activities through either tax revenue or borrowing. It’s essential that our total debt levels remain viable. Although the federal debt has risen by several billion dollars in the past four years, the strength of the Canadian economy completely reverses this negative profile. The deficit is having a negligible impact on the Canadian economy; the country’s overall debt (with a debt/GDP ratio of 30.7%) compares favourably with our main partners; and Canada ranks second in the G7 in terms of economic growth. Compared to other countries, Canada is in an enviable position when it comes to public finances.
Not a day goes by without a media commentator or press columnist reproaching the Trudeau government for opening the floodgates on spending. But a closer examination of the budget data reveals that the Liberal team has not really turned its back on the Harper government’s austerity policies.
The available budget data indicate that from 2020-2021 to 2023-2024, the federal government revenue should increase more rapidly than its expenditures.
And as the government’s spending plan is more modest than its forecast revenue, the loss of budgetary control decried by the media is not on the horizon.
In fact, expenditures on the government’s program are starting to decline as of this year, from 14.6% of the GDP down to 13.8% between now and 2023-2024. This level of debt is similar to that of the mid-1990s, when Canada was in the midst of budget tightening measures imposed by the Liberal government to arrive at a zero deficit. Is the federal government as extravagant as all that?
Federal health transfers
The federal government’s share of healthcare funding is in free fall. At the outset, the feds were committed to fund 50% of the costs borne by the provinces in this sector. Today, the federal portion has dropped to under 25%. The withdrawal of the federal government continues despite the favorable budget circumstances in Ottawa. The Canada health transfer for health care is increasing by 4.3% this year, which is lower than the 6% needed to improve the federal contribution. The consequence of this lag is clear: Ottawa is leaving it up to the provinces to shoulder the exploding costs of health care pretty much on their own. As in the era of zero deficits in the 1990s, the federal government is putting the viability of its budget first, to the detriment of the provinces.
What can we make of all that?
The federal government is in an enviable budget situation. In such a context, it goes without saying that it would be a good time to see the parties promise structural measures to address the major challenges of our times: fighting inequalities, averting a climate catastrophe and ensuring the quality and sustainability of our social programs.
On that note, make your vote count on October 21!