Federal budget: Irresponsible deficits and nothing for productivity

• Ottawa estimates that interest payments on its debt will cost $43.9 billion this year.
• The OECD estimates that Canada will experience the slowest growth of all advanced economies through to 2060.

Montreal, March 28, 2023 – The Montreal Economic Institute is worried about the federal budget’s chronic deficits and its lack of measures to address Canada’s lagging productivity.

“The Trudeau government long justified its deficits by saying that it could run them because interest rates were low,” says Renaud Brossard, senior director of communications at the MEI. “Interest rates having since shot up, the logical response from the government should have been to stop piling up debt at a record pace.

“Unfortunately, it’s Canadians who will get stuck with the bill for these excesses, with increasingly costly interest payments on the federal debt.”

The federal government projects that it will run a deficit of $40.1 billion this year. No date was put forward for a return to a balanced budget.

When the Trudeau government took power, the amount devoted to debt service was $25.6 billion. The government projects that it will cost $43.9 billion this year—an expense of $1,489 per taxpayer.

The government projects that it will spend $50.3 billion on debt service in 2028-2029.

At the start of the current government’s first term, the federal debt was $693.8 billion. According to the projections included in the budget, the debt will reach $1,333.6 billion by the end of this year. That works out to an increase of 92.2%.

“The growth of the debt in recent years has drastically reduced our ability to deal with crises,” says Mr. Brossard. “By continuing to erode our room to manoeuvre, the Trudeau government seems to be betting everything on the hope that we will never again have to face the slightest crisis.”

Another cause for concern for the Institute is the lack of measures to address Canada’s lagging productivity.

Canada will experience the slowest growth of any advanced economy between now and 2060, according to the OECD. The organization’s most recent report specifically mentions productivity as a way to reverse this trend.

This productivity lag could lead to a $17,741 gap between the standard of living of Canadians and that of the citizens of other advanced countries by 2060, according to a report from HEC Montréal’s Centre sur la productivité et la prospérité.

An MEI study published this past January pointed out the strong inverse connection found in the economic literature between corporate tax levels and amounts invested in productivity.

“While productivity growth supports rising standards of living in other advanced economies, Canada is unfortunately stagnating,” says Mr. Brossard. “The Trudeau government has missed a good opportunity to reverse course by restoring our tax advantage over the United States and encouraging investments in productivity.”

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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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Renaud Brossard
Senior Director, Communications
Cell: 514-743-2883