As of tomorrow, Ottawa is living on credit

Montreal, December 14, 2018 – The federal government will have spent all its revenues for 2018 by around 9 PM on December 15. For the remaining sixteen days of the year, it will have to borrow to pay its bills. Most of the provinces fare better: British Columbia and Quebec, notably, will still have money in the bank long after ringing in the New Year, according to the MEI’s calculations.

“If the federal government had respected its campaign promises, the date when it spent the last of its revenue this year would have been just after Christmas, with a zero deficit goal for 2019,” explains Germain Belzile, Senior Associate Researcher at the MEI. “The current situation is all the more troubling given that Ottawa is not projecting a return to budgetary balance.”

The federal government went back on its commitment of returning to a balanced budget again by announcing, in its latest economic statement, an $18.1-billion deficit for the current fiscal year. This represents an additional debt of nearly $500 per Canadian, just for this year.

As for the provinces, most will also have to borrow funds to finish off the year. Only British Columbia, Quebec, and Prince Edward Island succeeded in balancing their budgets or generating surpluses, with Nova Scotia almost managing to do so.

The deficit champion is Alberta, which had already spent all of its revenues by November 16. This province is living on credit for an eighth of the year. In second place is Ontario, which had spent everything by December 1st.

The provincial governments that have not used the recent period of economic growth to bring some order to their public finances could well find themselves with no room to manoeuvre in the event of an economic downturn.

“Several provincial governments have been living beyond their means for some time now. They should have taken advantage of the good economic times to stop living on credit,” explains Kevin Brookes, Public Policy Analyst at the MEI. “Indeed, the provinces, and Ottawa too, should follow the example of Quebec, which was one of the worst students in Canada not so long ago, but is now at the head of the class.”

“The various Finance Ministers do not seem to be taking into account the large number of studies showing that raising public spending is not a magic bullet. Today’s deficits will be, sooner or later, tomorrow’s taxes. Someone, someday, will have to pick up the bill, and it could be quite a steep one if interest rates keep rising,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.

The MEI thanks the Institut économique Molinari, based in Paris and Brussels, for having inspired us in the development of the methodology at the basis of the calculation used in this press release.

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The MEI is an independent public policy think tank. Through its publications and media appearances, the MEI stimulates debate on public policies in Quebec and across Canada by proposing reforms based on market principles and entrepreneurship.

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