Call her irresponsible

Cast your mind back, if you will, to Canadian Finance Minister Chrystia Freeland's Fall Economic Statement in November 2022.  Freeland predicted a budget deficit for fiscal year 2022/23 (which ends in s few days time) of C$ 36 billion. I pointed out a couple of things about this in a blog post on November 26:

For the 2022/23 fiscal year to date (i.e. April-September), the budget has seen a surplus of C$ 1.7 billion, compared to a deficit of C$ 68.6 billion in the same period of fiscal 2021/22.  Revenues are up across the board, while spending is sharply lower as a result of the expiry of COVID-related programs. 

And I went on to say that it already seems likely that the final outcome will be a significantly lower deficit than the Finance Minister projected less than a month ago.

Not one of my better calls; you would think that after more than four decades watching and commenting on Canadian budgets, I would know better by now. It turns out that the "targeted" measures announced back in November were just a down payment on a whole new era of government spending, which Freeland laid out in detail in her 2023 Budget, delivered on Tuesday. 

The details of the spending plans are almost irrelevant; one apparent movie fan among the commentariat appropriately dubbed it as "Everything Everywhere all at once".  There is much money for health care, particularly publicly-funded dental care, and for green energy investment, two priorities of the Liberal government (and of the NDP whose votes it need to remain in office). There is also help in maintaining "affordability" for households affected by inflation, though the scale of this is literally laughable: the so-called "grocery rebate" for a low-income family of four amounts to C$ 9 per week. Supersize that poutine, baby!  There is a commitment to eliminate suddenly-discovered waste in government spending, which only makes you wonder why a government now in office for the better part of a decade hasn't gotten around to this before. 

Instead of looking at the details, let's look at the bottom line -- the deficit -- starting with a bit of historical perspective.  Justin Trudeau's Liberals won a general election in 2015 in part because of a promise to run small, time-limited deficits in order to boost the economy.  That soon turned into a run of quite significant deficits with no end in sight. Then along came COVID, and the Government quite correctly opened the spending taps to keep the economy afloat. 

And then came fiscal year 2022/23. Revenues bounced back smartly and COVID spending wound down rapidly, with the result already noted above: a balanced budget for the first half of the fiscal year, and the clear likelihood of a much reduced deficit for the full year, after the ravages caused by COVID.  This makes what has happened since the fall economic statement, and what the government is now planning for the years ahead, very hard to understand.

The projected deficit for the current fiscal year (reminder: just days to go before this ends) is now C$ 43 billion, an even bigger shortfall than expected in November. Given that, as we have seen, the budget was in balance for the first half of the fiscal year, this means that the government has in effect run a deficit at a C$ 80 billion annual rate over the past six months. There is a lot of accounting chicanery at work here, but the underlying point is valid. 

The projected deficit for FY 2023/24 is now C$ 40.1 billion, up from the C$ 30.6 billion projected just five months ago. The Government seeks to blame this in part on the slowing economy, which may come as news to Bank of Canada Governor Tiff Macklem, who is still fretting that the economy is overheated and is likely not a happy camper this morning. As for the out-years of the forecast period, the deficit is projected to fall to C$ 14 billion by 2027/28 -- a year that was expected, mere months ago,  to see a return to surplus. 

As ever the Government brags about Canada having the lowest debt/GDP ratio in the G7. That may be true, though it does not count the very substantial debt burden of most Canadian Provinces.  Moreover, it ignores the fact that the ratio is actually set to rise slightly in the next year or two, and given the chronic unreliability of medium-term fiscal projections, that is all that can be relied upon. 

What are Freeland and Trudeau up to here?  This looks like an election budget, but unless the "confidence and supply" pact with the NDP is about to unravel, no election is due for at least two more years. The sea of red ink at the Federal level contrasts starkly with the much more balanced budgets being tabled at the Provincial level this budget season: are the Provinces fooling themselves, or are the Federal Liberals just reverting to their tax-and-spend (well mostly. just spend) inclinations?  The verdict here is clear. This is a bad budget.