PHOTO ILLUSTRATION: THE GLOBE AND MAIL. SOURCE PHOTO: GETTY IMAGES
The latest report from the Parliamentary Budget Officer on Canada’s fiscal outlook makes for sobering reading. Indeed, it depicts a government that is rapidly losing control of the public purse.
That spending for the current fiscal year is estimated to be nearly $6-billion over budget is more or less par for the course with this government. Experience should have taught us to attach no significance whatever to any of its spending projections, even intra-year, as they are always and inevitably revised upward by tens of billions of dollars.
Yes, tens of billions: The $509-billion the PBO now estimates for fiscal 2024 may be $6-billion more than was projected in Budget 2023, but it is $21-billion more than was projected in the budget before that, and $42-billion more than in the budget before that. And the final figure – we are only seven months into the fiscal year, after all – will likely be billions higher yet.
As I say, that is something we have come to expect. What is new, and alarming, is what is happening on the other lines of the fiscal ledger. Revenues, after years of coming in over expectations – a windfall that was whisked straight into spending – are now less than forecast, economic growth having gone from merely sluggish to non-existent.
Debt service costs, meanwhile, are soaring, the “historically low interest rates” on which the government based its fiscal plans now being more historic than low. Debt charges, the PBO calculates, now consume 12 per cent of total tax revenues – much less than in the 1990s, but much more than in the past decade.
All of which has combined to produce a projected deficit of $47-billion – not the $40-billion we were told six months ago – and a debt-to-GDP ratio that, at nearly 43 per cent, is rising, not falling. The government has blown through every one of the increasingly lax series of anchors, guardrails and targets it has set for itself; it is now clear that it has none.
Bear in mind: this is not just a short-term problem. The long-run economic growth rate is now estimated at 1.5 per cent – barely enough to keep pace with population. Interest rates are not about to decline any time soon. Population aging will continue to put pressure on costs – mostly for the provinces, to be sure, but sooner or later than translates into pressure on the feds.
And hovering over all, a world that grows more dangerous by the day. That solemn commitment we made at the NATO summit in Vilnius – to increase defence spending to at least 2 per cent of GDP? Possibly our partners expect us to deliver on it.
Well now. How would one expect a government in this sort of fiscal pickle to react? Maybe scale back its ambitions just a tad? Put off that latest discretionary purchase? Cancel the Disney+? No, of course not – they’re about to launch another social program, the much delayed, vastly expensive but suddenly unavoidable pharmacare.
The only question is how expensive. Here again, the PBO has helpfully updated its figures. In 2017, the last time the agency estimated the incremental cost of a universal, single-payer national drug insurance plan – that is, the cost of replacing the private insurance plans and patient out-of-pocket spending, in addition to the cost of existing provincial and federal plans – it put the figure at $7-billion in the first year.
That’s the cost to governments in general. If the federal government were to foot the entire bill, relieving the provinces of their responsibility, it would cost $19-billion, rising to $23-billion in five years. However, the PBO projected there would be savings of $4-billion annually from creating a public-sector monopoly, which would supposedly be able to drive a harder bargain with the drug manufacturers.
So while government spending would go up by $7-billion, overall spending on drugs, public and private sector combined, would go down by $4-billion.
And now? The PBO now puts the gross incremental cost to the public sector at $14.8-billion in Year 1, twice what it was six years ago. The savings from monopoly purchasing it now estimates at $1.4-billion – a third as much as the previous estimate.
Throw in revenues from patient co-payments and whatnot, and the PBO comes up with a net incremental cost to the public sector of $11.2-billion annually, to be divided – somehow – between the federal and provincial governments. The PBO declined to offer an estimate this time of an all-federal plan, but it’s implicit in its calculation of “total drug expenditure under pharmacare”: $33-billion in Year 1, rising to $39-billion in Year 4.
Even this federal government, I’m willing to bet, would be wary of taking on this kind of, uh, commitment. And if cost were not sufficient to deter it, the politics would. Leave aside the difficulties of wrangling nine provinces (presumably Quebec would refuse to participate) into aligning their plans with federal wishes. There is also the little matter of easing the private insurance plans out of the business.
Which is to say, of taking people’s existing drug plans away from them – the millions of Canadians who now have their drugs covered by their employers – in favour of a public plan which, by design, would be less generous in its coverage. I am trying to imagine the meal the Conservatives would make of this. Billions more in public spending, for less coverage!
This isn’t to say that there is no problem, or no role for governments to play in addressing it. The PBO estimates about 2 per cent of the population have no drug insurance, while another 10 per cent of the population is considered underinsured, meaning their drug costs exceed what is covered by their plans.
The working poor, the self-employed, and those in unstable or part-time employment are especially hard done by, having access neither to employer-provided plans nor the plans provided to those on social assistance. The poorest fifth of the population spend more than 1 per cent of their income on drugs, on average; for those with chronic illnesses that can rise to 5 per cent or 10 per cent. So far as this leads them to skimp on needed drugs, the result can be worse health, and added expenses for the public health care plans.
If we were starting from scratch, possibly we’d have done what most other countries have done, and covered drug purchases as part of medicare. But we didn’t, and it’s far from clear we’re in any shape to do so. With the rest of the public health system crumbling before us, is now really the time to tackle new projects? The logistical challenges alone are mind-boggling. Are the governments that brought you the eHealth and Phoenix debacles really up to keeping track of the prescription drug needs of 40 million people?
As for the savings to be reaped from government as monopoly purchaser – where have I heard that one before? Oh yes: medicare. That was how public health insurance was sold in the early days: not just in terms of fairness, but efficiency. It didn’t quite work out that way. Public health spending in Canada has ballooned from a little over $3-billion in 1967 to $250-billion today. The government, as some wit put it, “wrestled the doctors to the ceiling.”
Be skeptical, similarly, of efficiency arguments for a single-payer drug plan. The PBO study doesn’t show that such savings would result. It assumes them. I suggest there is ample room for doubt on this score.
If, on the other hand, it is fairness we want, we don’t have to embrace an all-in government monopoly to achieve it. We can simply expand our existing plans to cover those now excluded, an Obamacare-style kludge combining tighter rules on the private plans and broadening the public plans. Which I suspect is what we will eventually see from the Liberals.
Alas, it is not entirely up to them. A universal, single-payer plan, the NDP has announced, is now the “red line” for its continued participation in the supply-and-confidence agreement that has assured the Liberals of their hold on power for the past two years.
That doesn’t necessarily mean the government would fall: The NDP could pull out of the deal and still find excuses to avoid defeating the government. The Liberals could govern as all previous minority governments in this country have, at least federally: from bill to bill, with the support of whichever party they can persuade to back them each time. But it would certainly increase the odds of an early election.
And, with the Liberals down to 25 per cent or so in the polls, the NDP are looking friskier than they have in a long while. In the best case, they force the Liberals to cave and introduce a single-payer plan. And in the worst? Probably the party is not all that keen on an early election, either. But if they have to go through one, better now, arguably, than later.
Liberal support may well have troughed. They were late to come to grips with the housing and affordability issues, but have now begun to fight back, with all the tools at a government’s disposal. Inflation has come down a long way, and the Bank of Canada has probably raised interest rates as much it is going to. And so on. The longer the NDP waits, the better the chances of a Liberal recovery.
So in the game of chicken to come, you can see a scenario where neither side is willing to give way. The Liberals have everything to lose in accepting a single-payer plan. The NDP have nothing to lose by insisting on it. Hang on to your hats.
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.
:format(jpeg)/cloudfront-us-east-1.images.arcpublishing.com/tgam/FAPVWTU2TZDX7GBBSI7ZEN3GIM.jpg)
