Opinion: Carney’s fiscal update continues Trudeau-era approach to federal finances

Prime Minister Mark Carney walks to his office for a Cabinet meeting on Parliament Hill in Ottawa on April 28. Photo by Blair Gable/Postmedia

Article content

On Tuesday, the federal government released its spring fiscal update, revealing a whopping budget deficit this year and continued high deficits in years to come. Despite promising a “very different approach” from his predecessor, Prime Minister Mark Carney continues to dig a deeper hole, particularly for younger generations of Canadians.

Article content

To quickly recap, the Trudeau government borrowed historically-large amounts of money to fuel its voracious spending habits. As a result, federal per-person spending and debt reached the highest levels in Canadian history (adjusted for inflation) while the government ran nine consecutive budget deficits. In other words, Trudeau created a fiscal mess.

Article content

Article content

Article content

The economic results were also dismal. On growth of per-person GDP (a key indicator of living standards), Justin Trudeau’s Canada trailed both Stephen Harper’s and Jean Chrétien’s. Under Trudeau, business investment, a key driver of income growth, declined on a per-worker basis.

Article content

Article content

In light of these major economic and fiscal problems, on the campaign trail last year Carney promised to “spend less” and increase investment into Canada to improve economic fortunes. Based on this rhetoric, it seemed the government would finally act to repair the damage.

Article content

Unfortunately, it has not lived up to its campaign rhetoric. According to Tuesday’s fiscal update, from fiscal years 2025-26 to 2029-30, it actually plans to increase spending by $83.2 billion more than the Trudeau government planned for that same five-year period. And it will run budget deficits of at least $50 billion each year, for total projected deficits of $309.2 billion over those five years — double what the Trudeau government forecast ($154.4 billion). As a result, federal debt will now reach a projected $2.9 trillion by the end of the decade. This is a disaster for younger Canadians, who will bear the bulk of the debt burden — that is, higher taxes — for decades to come.

Article content

Article content

At the same time, the Carney government has failed to meaningfully address Canada’s uncompetitive tax system. Last year it reduced the lowest personal income tax rate from 15 to 14 per cent, but this will do little to attract new investment and high-skilled talent to the country. Canada’s top combined federal and provincial income tax rates remain among the highest in the industrialized world and continue to deter investors and skilled workers from relocating to or staying in the country.

Article content

Article content

Of course, Donald Trump’s tariffs have taken their toll on the economy, but Carney’s spending and borrowing binge is largely a choice — not a necessity. According to the fiscal update, for the next four years federal revenue projections are weaker than the Trudeau government forecast, but revenues are still expected to grow by an annual average rate of 3.6 per cent. That’s in line with the revenue growth the Trudeau government experienced from 2016-17 to 2019-20, before COVID.

Article content

Paying lip service to the importance of change, yet only making small tweaks (e.g., the government’s “comprehensive” spending review), does not constitute a prudent fiscal approach. Rather, it’s  a continuation — or even an acceleration — of Trudeau’s policy approach. Eventually, the government is going to have to make difficult decisions to reduce spending and reform the tax system (as the Chrétien government did in the 1990s) to repair Ottawa’s finances and help spur economic growth for Canadians. Putting things off the way this update does will only make the burden worse for future generations.

Article content

The Carney government’s spring fiscal update includes ever-increasing spending and more red ink. That’s very close to the Trudeau government’s approach — which should alarm anyone who cares about the state of Canada’s economy.

Article content

Jake Fuss is director of fiscal studies and Grady Munro a senior policy analyst at the Fraser Institute.

Article content