Pierre Poilievre’s argument against the federal Liberal government rests on a very simple premise: that excessive federal spending is the root of all evil. According to the Conservative leader, federal spending has driven up inflation and inflation has led to higher interest rates, and the combination of the two has made everything terrible.
With that in mind, Poilievre was understandably excited on Monday to highlight an analysis published by Scotiabank that found government spending was ultimately responsible for driving the Bank of Canada’s key policy rate 200 basis points higher than it might have gone otherwise.
“Scotiabank says that government deficits have added two percentage points to interest rates,” Poilievre told the House of Commons.
The fine print is less helpful to the Conservative leader. Seventy of those basis points are linked to spending by provincial governments (most of which are currently run by conservative-minded premiers). Another 20 points are the responsibility of municipal governments.
That still leaves 110 basis points — the equivalent of 1.1 percentage points — tied to federal spending over the past four years. But 80 of those points were driven by federal spending to support individuals and businesses during the pandemic.
Sean Fraser, the Liberal minister of housing, eventually got around to pointing this out to the Conservatives. He asked the opposition side to imagine what the situation would be now if the government hadn’t provided those supports.
The political, economic and fiscal reality of this moment — defined by persistent inflation and higher interest rates — still seemed to be written all over the Fall Economic Update Finance Minister Chrystia Freeland tabled Tuesday afternoon.
“The foundation of our fall economic statement is our responsible fiscal plan,” Freeland told the House.
Liberal leader Justin Trudeau at Liberal party headquarters in Montreal on Oct. 20, 2015 after winning the general election. Trudeau’s campaign embraced deficit financing to pursue government priorities. (Sean Kilpatrick/Canadian Press)
The relative responsibility of Liberal fiscal policy has been up for debate since the moment during the 2015 election campaign when Justin Trudeau said a government led by him would run a deficit to fund its chosen priorities.
For 20 years — from 1995 to 2015 — it was accepted wisdom that running a deficit was inherently bad, something that could be barely tolerated only in the event of an economic crisis. And that shibboleth of official Ottawa has proved exceedingly hard to shake.
For sure, the Liberals have not helped their cause with a run of deficits that have been higher than promised. But in her remarks to the House, Freeland emphasized the relative soundness of the federal government’s books, at least when compared to other G7 countries. She also noted the government’s current efforts to cut or re-purpose $15 billion in federal spending.
The new spending announced on Tuesday is relatively restrained. Freeland did not table the sort of mini-budget that recent fall updates have become. Finding things the government could do without committing significant new funds seems to have been the order of the day — and nearly all of the new measures are aimed at addressing the cost of living concerns that dominate federal politics right now.
“We are taking care not to feed inflation — by carefully targeting new investments towards the priorities of Canadians today, and towards the future growth that makes our finances sustainable,” Freeland said.
The fiscal hawks are circling
Poilievre was unimpressed.
“With this $20 billion of costly new spending, this update can be summed up very simply: prices up, rent up, debt up, taxes up, time’s up,” the Conservative leader said after Freeland had finished.
The Conservatives, he said, would be voting against “this disgusting scheme.”
Poilievre’s taunts notwithstanding, the Liberals seem to be contending with some basic realities. With the Bank of Canada increasing interest rates to combat inflation, the economy has slowed. The government has to take care to avoid feeding inflation. It might also be worried about disappointing credit rating agencies. Meanwhile, higher interest rates have increased the cost of servicing the federal debt.
Poilievre calls fall economic statement ‘disgusting scheme’
Featured VideoConservative Leader Pierre Poilievre criticizes the more than $20 billion in new spending promised in the federal government’s fall fiscal update.
Even if the government was eager to spend a lot more right now, it seems to have decided that its room to manoeuvre is limited.
That likely complicates any hopes the NDP might have had of seeing a national, single-payer pharmacare program implemented over the next two years. But Poilievre and other fiscal hawks will still find plenty to worry about here.
Compared to the outlook presented in the spring budget, the deficit for the current fiscal year is virtually unchanged. But the shortfall is now expected to be larger over the next four years.
Federal debt as a share of the economy — the debt-to-GDP ratio — is still expected to decline over the medium term, but not before rising slightly to 42.7 per cent next year. The annual public debt charge — the interest the government pays on its total debt — is also now projected to peak at 1.8 per cent of GDP, twice what it was before the pandemic.
Those numbers are hardly unprecedented. At 42.7 per cent, the debt-to-GDP ratio would be roughly where it was when Jean Chretien left office. Public debt charges as a share of GDP were higher as recently as 2007.
Can Liberals convince Canadians it’s all worthwhile?
If Tuesday’s update manages to avoid pushing up inflation and interest rates (and makes for happier voters as a result), the Liberals might consider it a successful exercise. But that still might amount to only half the battle.
Poilievre’s argument isn’t simply that the government is spending too much. He also argues it’s not accomplishing very much with all the money it’s spending. That too is hardly a new criticism, but it’s one the Liberals have long struggled to rebut.
It’s also a more relevant debate. The size of the federal government’s spending envelope has always been less interesting than what it did with it. And making the case that the government has accomplished something with those deficits seems vital to the Liberal cause ahead of the next election.
Deputy Prime Minister and Minister of Finance Chrystia Freeland, joined by Mayor Olivia Chow, makes a housing announcement in Toronto on Nov. 14, 2023. (Evan Mitsui/CBC)
In her budget speech and in the economic update itself, Freeland highlighted the implementation of the Liberal child care program and the money families with young children have saved as a result.
But memories are short, and voters aren’t obviously in a mood to reward the Liberals just because they implemented a national child care program — which may be why the finance minister spent nearly half of her speech talking about housing.
“Our country needs more homes — and we need more of them, fast,” Freeland said, promising to tackle the problem with “purpose, drive and intensity.”
However much the government spends or does to get those house built — and whatever the size of the deficit that results — voters will be looking for some tangible signs of progress.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
