Deputy Prime Minister and Minister of Finance Chrystia Freeland speaks during a news conference, in Ottawa on Nov. 7.Adrian Wyld/The Canadian Press
The polls have been taken, the focus groups have been convened, the stakeholders have been consulted: next week it all comes to a head in the Finance Minister’s fall economic statement, an annual ritual that in recent years has taken on the trappings of a mini-budget.
For myself, I have a short list of “asks,” none of which I expect to see in the statement. These would include:
An anchor, a guardrail, a signpost, anything. Is it too much to ask the government to frame its spending within some sort of explicit budget constraint? That is the point of a budget, after all: to make choices with limited resources.
In the extreme the limits are set by capital markets, but it is usually thought best not to push things quite that far. Where’s that less-absolute limit? How about the point at which a dollar in extra spending yields less social benefit than if it were left in private hands? Or if that is too exacting a standard, then at least set some limit, however loose.
You remember that when the government first came in it was going to balance the budget in four years. It soon gave up forecasting a return to balance, in favour of a constantly declining debt-to-GDP ratio. Now the debt-to-GDP ratio is climbing, and the government appears unconcerned.
Spending projections that are good for more than six months. Every budget and every fall statement the government issues a new projection for spending, and every time it shows spending firmly under control: a gently sloping upward curve. It’s just that with each new set of figures the entire curve shifts up by several billion dollars.
Program spending for the current fiscal year is now estimated (as of the Parliamentary Budget Officer’s latest report) at $459-billion. As of the March budget, it was supposed to be $453-billion. As of last year’s fall statement, it was $450-billion; in the previous spring budget, $437-billion; the fall statement before that, $426-billion.
Of what use are such projections, other than to materially misrepresent the country’s finances?
Help a central banker out. Government spending, on its own, does not cause inflation, especially in a small open economy: beyond the short term, it affects the composition of demand, not the level. It can, however, make short-term inflation “stickier” than it might otherwise be, especially as it affects expectations.
One thing that can lead people to question whether the Bank of Canada will be willing to do what it takes to get inflation back to 2 per cent is the state of the federal government’s books. Getting control of its own finances, then, is one of the best contributions the government can make to the Bank’s fight against inflation.
A serious plan to deal with the growth crisis. Until lately the concern in policy circles was that Canada’s economic growth was merely sluggish: at around 1.5 per cent annually, it is now half as fast as in the 1980s and a third what it was in the 1950s and 1960s. As late as 1970, Canada enjoyed one of the highest standards of living in the world: our per-capita GDP was sixth in the OECD. We are now 17th.
But in recent years the news has grown even worse. Per-capita GDP is not just falling in relative but in absolute terms. At roughly $71,000 (in 2022 dollars) it is no higher now, after inflation, than it was in 2017. Productivity – output per hour worked – is also falling, and has been for 11 of the past 12 quarters.
The government has only recently begun to show any sense it is even aware of this problem, let alone that it understands it. What the Liberals call a growth strategy – subsidies for R&D, government-directed investment funds, “superclusters” – looks almost flippant, so irrelevant is it to the actual problem.
The causes of Canada’s growth crisis are, in the main, two: a lack of investment – Canada’s average rate of gross fixed capital formation over the past seven years ranked 46th out of 47 countries tracked by the OECD – and a lack of effective competition, the kind that spurs investors and managers to take risks and make the hard decisions necessary to increase productivity.
That won’t change because Ottawa bets on a few sexy-sounding technologies with other people’s money. It will change only when millions of Canadians are persuaded to save and invest more, and when thousands of Canadian managers are persuaded their livelihoods depend on making better use of investor capital – because the competition will eat their lunch if they don’t.
It requires, in short, structural changes in economic policy. Not that I expect anything of the kind.