Over the last 9 years, excluding the Pandemic, the federal government's deficit went from $2.9 billion in 2015 to $61.9 billion in 2024. We're going to exclude the Pandemic spending because that was the time governments are supposed to spend big.
Ottawa
did that in 2020 and 2021. What it did not do was wind down spending
in 2022. Instead, Ottawa added new government programs for things like
school lunch programs, Dental Care, National Day Care, housing programs,
and now Pharmacare over the last few years. Pharmacare is just
starting to unfold.
All of these programs cost money and over time they cost more as they grow adding new beneficiaries.
The
Federal government's deficit is rapidly rising and there are no signs
it is going to peak anytime soon. In December 2024 Chrystia Freeland
resigned the day she was to give the Fall Economic Update. That story
buried the news on the deficit for most part. A deficit that was to be
held to $40 billion instead hit the aforementioned $61.9 billion mark.
Today
every dime generated by the GST and then some is effectively consumed
by debt service charges. Here's the good news, bond yields are low
today so money is cheap.
What if that changes?
Or
worse, what if Donald Trump's tariffs set off a global recession?
That's looking like a certainty now. Regardless of that, Canadian
companies are already laying staff off, reducing hours in some cases,
and canceling expansion plans and new purchasing. Even if Canada avoids
a full blown recession an economic slow down is going to cut government
revenues substantially.
If
the deficit is going to get worse due to economic conditions and
current spending then we need to now consider campaign promises and NATO
obligations.
Defense
spending has to rise about $22 billion a year to meet our 2% of GDP
NATO commitment. That's a full 1/3 of our current deficit. Both the
Liberals and Conservatives have promised tax cuts, and program spending
in the neighbourhood of another $10 billion a year, give or take. So
our 2026 deficit, onward could be in the $100 billion range.
Can we sustain that long term? The answer is no.
Mark
Carney and Pierre Poilievre have both promised big tax cuts, and new
spending and to balance the budget. Actually, Mark Carney says he will
reign in spending. Neither of them are clear or bothering to offer any
details and their supporters are just fine with that.
The
reality of our situation as a nation is going to hit hard when the
election is over. The government, whoever that is and it'll likely be
Mr. Carney, is going to have to deliver a budget that moves on Liberal
promises while hitting a wall imposed by the deficit.
Either
Mr. Carney, or in the event of an upset Mr. Poilievre, they will be
forced to renege on some or all of their campaign promises and start the
process of cutting social programs.
Yes,
Dental Care, school lunches, National Day Care, pharmacare, child tax
credits, housing programs, and stuff like that - some of it will go or
be trimmed substantially. In fact, over the next few years it is likely
a lot of those Trudeau era programs will be canceled altogether.
That is the natural consequence of living off of a credit card. Eventually one hits their credit limit.
Some
will say that the government can issue bonds and the Bank of Canada
will buy them at a low rate. We can just print money. Venezuela,
Zimbabwe, Argentina, and even Germany at one time did that just that.
They ended up with hyperinflation whereby inflation was at a rate of
1,200% or more. If you thought 8.2% was bad just imagine what 1,200%
looks like. A nation can't just print money. Even the United States is
starting to buckle under the pressure of its unfathomable debt.
Printing too much money, issuing too much debt, is inflationary.
No,
our next Prime Minister is going to be disappointing the entire country
very soon. In fact, he is likely going to be very unpopular by the end
of the year.
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