Coupled with unprecedented spending in response to a pandemic, the expansion of government size can help hamper efforts to recover. According to the new report.
In addition, based on government growth related to per capita spending and economic size, further excessive expansion of the government after COVID reports that it could hinder the prosperity of Canadians and their families and slow economic growth. I found the book.
Fraser Lab economists Jake Fas and Nathanial Lee said in a report that spending growth actually started before the pandemic, with per capita spending starting at $ 8,063 between 2015 and 2019. It says it has surged to $ 9,500.
“This means that the Trudeau government increased actual per capita federal spending by almost 18 percent during its first term and before the recession,” they write.
They conclude that federal spending as a share of the economy increased from 14.5 percent to 16.2 percent between 2015 and 2019, and government spending at all levels increased to 41.2 percent of the economy in 2019. ..
According to the report, research shows that the size of the government is affecting economic growth.
“Excessively big government usually requires governments to become active in ways that are counterproductive to economic growth. For example, redistributing income from one group to another, corporate welfare and protection. By supporting specific industries and sectors of the economy through trade principles, governments will probably help slow economic growth, “Fuss and Li write.
“For these reasons, scaling up the government between 2016 and 2019 did not produce better results for the Canadian economy. Instead, the Trudeau government has been able to increase income, the labor market, and so on. And oversaw the downturn in business investment performance, all of which are important for economic growth and social progress. “
Going forward, the report predicts per capita spending to reach $ 17,091. That’s about twice the amount spent during the 2009 recession and during the peak of World War II.
According to Lakehead University economist Ribio Di Matteo, maintaining spending between 24% and 32% of the economy creates the best outlook for economic growth. He says the issue of spending and government expansion needs to be central to political debate.
“We needed to increase spending to deal with the pandemic, but the question is whether it will bring about a long-term change in the role of government and a permanent increase in the size of the public sector. Canada is against GDP. The government’s total spending ratio fell into a pandemic of about 41 percent, “he said in an interview.
“It was estimated to reach 57% in 2020, but this was achieved by deficit finance. To stay at that level, it would lead to more deficit finance / debt acquisition or tax revenue. It will lead to an increase in the GDP ratio, “explains Di Matteo.
“The pandemic is a short-term shock, and a permanent increase in the ratio of government spending to GDP will inevitably involve tax increases and must be discussed and decided in elections.”
In December 2020, Prime Minister Justin Trudeau said that Canada was “historically and appropriately” worth a $ 100 billion stimulus, equivalent to 3-4% of GDP, for Canada to “better recover” in the years following COVID. Announced spending plan. crisis.
Delving into details on how the government spends its finances Prior to the budget scheduled for April 19, the deficit is currently projected to be approximately $ 381.6 billion in the 2020-2021 fiscal year. I will. Pandemic and ongoing economic crisis.
Di Matteo states that the new program introduced as a result of the pandemic could mean a reduction in other programs and a tax increase.
“When a pandemic is used as an opportunity to introduce a new program, sustainability requires a reduction in other programs or has a new spending obligation as well as a new spending obligation. Eventually, new or existing taxes will need to be increased, and debt repayment costs for significantly expanded net debt will also be higher, “he says.
“Government needs help, but if you lose control of your finances, it doesn’t help at all. The lesson from history is that the road to debt and the financial crisis is often paved in good faith, followed by rising interest rates and It means being overwhelmed by external economic power such as inflation. “