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Commentary
Recently, Federal Finance Minister Chrystia Freeland commented on Canada’s inflationary challenges and federal budget. Unfortunately, many of these statements are misleading, and Freeland has doubled Trudeau’s approach to fiscal policy.
In response to questions about the government’s approach to dealing with inflation, Freeland reiterated the claim that the latest federal budget is a “very financially responsible budget.” However, this claim is not very similar to reality.
The projected federal deficit will decrease from $ 113.8 billion in 2021/22 to $ 52.8 billion in 2022/23, not due to prudent spending or responsible financial management. Instead, the recovery of the country’s economy, high oil and gas prices, and high inflation have allowed Ottawa to benefit from inflows of income.
The Latest government forecast Federal revenues show that both 2021/22 and 2022/23 will be more than $ 30 billion higher than budget 2021 estimates.
Despite this good luck, the Liberal government has opted to spend more rather than move to a fiscal balance more quickly. With a spring budget of 2021, Freeland announced a total of $ 411.9 billion in program spending for the 2022/23 fiscal year. Only a year later, when the government submitted its budget for 2022 in April, the government was planning to spend an additional $ 22.4 billion.
In addition, the government has added new spending that has nothing to do with COVID. This includes new permanent programs such as national dentistry and $ 10 a day day care, with annual spending planned to be at least billions of dollars. These programs are fully borrowed. In short, the debt that Canadians bear will continue to grow.
In addition, the government has not yet introduced national pharmacocare, which means that annual spending will continue to increase.
Consider this now.Freeland was just sticking Initial spending plan As presented in 2021, the 2022/23 deficit could be 42% lower than the current situation, and the government plans to run a surplus by 2025/26.
Contrary to rhetoric, the government made few or no attempts to brake federal spending and avoided a financially responsible budget this year.
Freeland also argued that Canada has the lowest net debt in terms of economic share (GDP) of the G7 countries. However, this can be misleading and requires additional context. Using net debt as an indicator gives Canada an advantage in international comparisons because it misrepresents the ratio of debt to GDP.
The figures quoted by Freeland include assets in the Canadian and Quebec pension schemes, which effectively lowers Canada’s debt levels. However, these pension assets are needed to cover the benefits promised to current and future retirees. Therefore, making international comparisons using the net debt-to-GDP ratio can be misleading.
However, when comparing Canada to G7 countries using total debt (government total debt) as an economic share, Canada was ranked fourth out of seven in debt-to-GDP in 2020.
Further expanding the analysis to include 29 developed countries, Canada ranks 25th in debt, with only Japan, Italy, Portugal, and the United States having higher levels of debt. This casts doubt on Freeland’s claim that Canada has relatively low debt compared to its peers.
Finally, Freeland argued that the job of lowering inflation was primarily the responsibility of the Bank of Canada. Central banks play the most important role in the fight against inflation, but fiscal policy choices also influence inflation.
Recently Report from Scotiabank He argues that high levels of government spending contribute to high inflation, and that reducing government spending helps lower inflation and limit the rise in interest rates by the Bank of Canada.
In other words, governments have a role to play in dealing with inflation, and spending to do so needs to be reduced. It’s not just the responsibility of the Bank of Canada.
Despite recent comments from Minister Freeland, the Liberal Party government can do more to tackle inflation and demonstrate true fiscal responsibility by limiting spending and debt levels. ..
The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.
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Jake Fuss is a Senior Economist at the Fraser Institute.
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