Canada's Liberals Abandon Fiscal Orthodoxy, Commit to Spent-Fast Growth Strategy

In a decisive break from the past quarter century of balanced budgets and modest government, the federal Liberals have unveiled a new vision for government-led economic growth. The 2021 budget sets out to spend-heavily, with $135.2 billion in new spending over five years, aimed at accelerating economic growth and job creation for the 450,000 Canadians currently without work.

Key Takeaways:

• The Liberals' spending plan will total $135.2 billion over five years, marking a significant departure from the balanced-budget era of the past quarter century.
• The budget projects a peak national debt burden in the current fiscal year, with a ratio of net debt to gross domestic product of 51% - higher than the pre-1995 levels that led to a debt spiral.
• Ottawa's public debt charges are projected to double between fiscal 2020-21 and 2025-26, rising to $39.3 billion from $20.4 billion.
• The Liberals are counting on a supercharged economy to outpace the buildup in national debt, although just barely, and have no broad tax increases beyond a few boutique measures.
• The budget sets no goal beyond fiscal 2025-26 for reducing the national debt burden, with only a single fiscal anchor of keeping debt-to-GDP at 51% in the current year.
• Economist Armine Yalnizyan called the new child-care program a recognition of the economic benefits of child care and a historic moment in turning decades of ineffective talk into action.
• Alexander Laurin, director of research at the C.D. Howe Institute, warned that even modest increases in interest rates at the end of the decade would mean debt would start growing faster than the economy.

Statistics:

• The federal government's new spending plan totals $135.2 billion over five years.
• Ottawa's public debt charges are projected to double, rising to $39.3 billion from $20.4 billion between fiscal 2020-21 and 2025-26.
• The national debt burden is projected to peak in the current fiscal year at a ratio of 51% net debt to gross domestic product.
• The Liberals have set no goal beyond fiscal 2025-26 for reducing the national debt burden.
• 450,000 Canadians are currently without work.

Sources:

• Alexandre Laurin, director of research at the C.D. Howe Institute
• Armine Yalnizyan, economist
• Chrystia Freeland, Finance Minister
• Don Drummond, former senior official in the finance department
• Jean Chrétien and Paul Martin, authors of the 1995 Liberal budget
• Lester Pearson and Pierre Trudeau, authors of the mid-1960s Liberal budgets
• Louis St. Laurent, author of the late 1950s Liberal budget
• The Globe and Mail, original article.