Matthew Lau: Trudeau Liberals economic update will make the bad even uglier

In the federal government’s 2023 fall economic statement, to be presented by Chrystia Freeland in the House of Commons on Tuesday, we will undoubtedly be told of the Liberals’ efficacious fiscal management and the wonderful economic results their policies have produced. But Canadians are suffering an economic crisis of unaffordability, the worst decade of growth since the Great Depression, a public sector rapidly rising in cost and notable for its inefficiency, a multitude of regulatory initiatives impoverishing consumers and the businesses who serve them, and haphazard taxation and threats of taxation to top it all off.

Whatever mumbo-jumbo the Liberals put in their economic statement is therefore unlikely to be believed by anyone except their most intransigent supporters. They are not bad people, most of them, but grasping economic reality is not among their specialties. Among those impervious to reality is the prime minister. On Friday, Justin Trudeau made the patently crackpot declaration that his government has “always exercised fiscal restraint.” In fact, they never have. When the Liberals were elected in 2015, the budget was balanced; they promptly threw it into deficit and even before the pandemic began, overspent the fiscal plan they inherited by $127 billion over four and a half years.

Canadians have experienced first-hand the miserable outcomes the Liberals’ spending and general mismanagement have produced; a Statistics Canada report last week puts some numbers behind the experiences. A federal statistics agency’s research report is unlikely to be too political, but the story the data tell is a bloodbath for anyone trying to defend the Liberals’ economic record. “Declines in gross domestic product per capita portend lower living standards,” the title of one section reads. A line chart plots GDP per capita growth against the long-term trend.

From Q3-2015 to Q2-2023, real GDP per capita in Canada increased a paltry 1.6 per cent, far behind the 8.2 per cent trend line growth. The pandemic cannot be blamed: in the same period, the United States has seen 12.5 per cent growth. Nor can the pandemic explain why Canada real GDP per capita declined 2.0 per cent in the four quarters ended Q2-2023.

The StatCan report remarks that “raising standards of living will depend on productivity growth” but after spiking in early 2020, “labour productivity has declined in 11 of the past 12 quarters and is below pre-pandemic levels.” Business investment is the key to driving productivity, but in order to encourage it, taxation and regulation must be light and predictable — the opposite of current federal policies. Thus the StatCan observation that non-residential business investment today is 14 per cent below what it was in 2014, a key indication that without policy change, productivity and living standards are not soon to improve. The next four sections of the StatCan report highlight that “prices for many household staples remain elevated” and “shelter costs also remain high,” homeownership and rental costs are rising, residential construction has declined steadily since 2021, and rising living costs have impacted young and financially vulnerable households the most.

The takeaway from Canada’s public finances and the economic data is that Trudeau’s economic record is a shambles and every Liberal statement doubling down on raising spending and expanding regulation will make the bad economic outlook even uglier. If Canada has not quite reached the misery that the U.K. did in its 1978-79 Winter of Discontent in which there were widespread strikes and nothing seemed to work, in a poll earlier this year, two-thirds of Canadians agreed it feels like everything is broken. The U.K. reversed its decline by electing Margaret Thatcher in 1979 to deregulate, privatize, and reduce taxes. From being a basket case, thanks to a decade of Thatcher’s policies, the U.K. was restored to a position of strength and prosperity.

Canada too can reverse its decline before it becomes an honorary member of the Third World, but it will require undoing everything the Trudeau government has done since 2015 and that it continues to do now. Whatever is in the Liberals’ fall economic update, it will do no good.