Deputy Prime Minister and Minister of Finance Chrystia Freeland and Prime Minister Justin Trudeau walk together before delivering the fall economic statement in Ottawa on Nov. 21, 2023.BLAIR GABLE/Reuters
Jake Fuss and Grady Munro are fiscal policy analysts at the Fraser Institute. They are the authors of a recently released report on the federal budget.
Next month, in all likelihood, the Trudeau government will table its federal budget. The Trudeau government has never balanced the budget during its decade in office. Instead, it’s ran continuous deficits with no end in sight.
On the campaign trail in 2015, the Trudeau Liberals promised a series of short-term deficits – all less than $10-billion – before returning to a balanced budget in 2019-20. Nearly a decade later, the Trudeau government is on track to run nine consecutive deficits, with all but one exceeding $10-billion. In fact, starting in 2019-20, federal deficits have all exceeded $35-billion. Even when excluding COVID-related spending, 2020 and 2021 remain the two highest years of per-person federal spending (inflation-adjusted) in Canadian history.
Current projections show more of the same, with deficits exceeding $18-billion expected for the next five years. Clearly, this government has failed to keep its balanced budget promise.
Here’s why. From 2014-15 to 2023-24, the government increased annual program spending (which excludes debt interest costs) by $193.6-billion or 75.5 per cent, mainly by borrowing.
However, if the government changes its spending habits, there’s a clear path to budget balance in one to two years.
For example, if the government reduced program spending by 4.3 per cent between 2024 and 2025, it could balance the budget within one year. The following year, the government could resume increasing spending by the projected rate of inflation and population growth (3.3 per cent) and run an $8.2-billion surplus. Alternatively, the government could balance the budget in 2026-27 by slowing annual spending growth to only 0.3 per cent for two years.
Again, these two scenarios represent relatively modest spending restraint. Indeed, to balance the federal budget in the 1990s, the Chrétien Liberals reduced program spending by 9.7 per cent over two years – significantly more than the spending adjustment proposed in either scenario here.
By consistently spending more than it collects in revenue, the federal government has accumulated a large amount of debt – roughly $33,682 per person. The government must pay interest every year to service this debt, which accounts for a significant portion of the budget. For example, in 2023-24 the federal government will spend $46.5-billion on debt interest, substantially more than it will spend on child-care benefits.
Additionally, by running deficits the government increases the tax burden on future generations of Canadians who are ultimately responsible for paying off today’s debt. Simply put, deficits impose a disproportionate tax burden on future generations.
So, the Trudeau government could quickly balance the budget if it changed its spending habits. But where to begin?
For starters, the government could reduce or eliminate corporate welfare. From 2007 to 2019, Canadian governments, including the federal government, spent roughly $352.1-billion (inflation-adjusted) on corporate welfare – subsidies and capital transfers to businesses delivered through government spending – yet research suggests this kind of spending produces little to no economic benefit. In fact, governments might actually harm the economy when they pick winners and losers in the free market. And there are many other areas for Ottawa to reduce spending – but it requires discipline.
The Trudeau government’s undisciplined approach to spending has produced nearly a decade of consecutive deficits. If it wants to balance the budget in the near future, the government must begin to rein in spending in its coming budget.