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Federal public finances: The elimination of the net debt delayed 20 years

Montreal, October 23, 2017 – Tomorrow, the federal government will publish its economic and fiscal update. Even though we already know that deficits are on a downward slope, the public finances situation is nonetheless looking rather grim, according to an overview of figures presented by the MEI.

Last March, Ottawa’s budget deficit was almost $18 billion, whereas two years earlier, the government registered a budget surplus of nearly $2 billion. Importantly, these budget deficits inevitably grow the federal government debt.

“The situation is far from rosy,” says Alexandre Moreau, Public Policy Analyst at the MEI. “The Parliamentary Budget Officer estimated in 2014-2015 that if the trend at the time were maintained, the federal government’s net debt would be completely eliminated by 2040. But according to its most recent projection, this date has now been pushed back to 2060, a 20-year delay.”

It is true that Canada’s budget situation is healthier than that of many other industrialized countries, but that’s no excuse for a lack of discipline. Indeed, this debt will ultimately be financed by higher taxes that are harmful to economic growth and the prosperity of Canadians.

Furthermore, the days of near-zero interest rates that allowed the debt to be financed at very low cost are gone.

“For now, the amounts projected for infrastructure have still not all been spent, which could increase the deficit in the coming years if the government decided to reach its objectives,” notes Mr. Moreau.

Although some believe that increasing public spending is justifiable in situations of economic crisis, this argument is in no way valid in the current context, since the economy is performing relatively well.

“Even more worrisome than the size of the deficits and the debt is the direction that public finances have taken for the past two years and the absence of a planned timeline to return to budgetary balance,” adds Michel Kelly-Gagnon, President and CEO of the MEI. “If the government does not change course, it is taxpayers who risk taking another hit.”

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Pascale Déry, Vice President, Communications and Development, MEI / Tel.: 514-273-0969 ext. 2233, Cell.: 514-502-6757, Email: pdery@iedm.org

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