In the spring of 2019, before everything changed, the federal government presented a budget that was the picture of sunny optimism. The deficit, then a mere $20-billion, was projected to decline to less than $10-billion in four years. This was not by dint of any exercise in fiscal restraint; indeed, it would have declined much faster but for some quite heroic increases in spending, so fast were revenues flowing in. But why not? The revenues were there; they would always be there; might as well spend them. The budget, I wrote at the time, was “a tribute to the pleasures of endless economic growth.”
Well, as I say, that was in the before times. The country has spent the past two years dragging itself through an endless pandemic. The $700-billion debt it was considered prudent to be carrying then – 10 years into an expansion – is now a $1.2-trillion debt. Revenues are as strong as ever; indeed, they are now higher than they were projected to be in that 2019 budget. But spending is even higher: not at the heights it reached in the worst days of the pandemic, to be sure, but far above anything that was ever imagined before. Where it is projected to remain.
Or rather, where it was projected to remain. The pandemic may – or may not – be subsiding, but just as the Trudeau government may have imagined it could settle into another age of endless growth, low inflation, and historically low interest rates, it has been blindsided by reality once again. The short-term economic consequences of Russia’s invasion of Ukraine are bad enough: more supply squeezes, this time in minerals, energy and grains, another spike in inflation, and a heightened risk that this will become embedded in inflation expectations. (The interest rate on 10-year Canadian government bonds, at 2.2 per cent, is now at a four-year high.)
But the longer-term consequences are even worse, even assuming the present conflict does not spiral into the Third World War. A Russian debt default, possibly within days, will send lasting shock waves through world financial markets, especially if it is discovered that one or two institutions have more exposure to Russian debt than they have been letting on. Worse will follow, if sanctions are applied also to China and India, for their willingness to do business with Russia in defiance of existing sanctions. And that is just for starters.
What has yet to be fully understood is what a permanent rupture has just occurred in the world order. Unlike the pandemic, there can be no going back to the status quo ex ante. Under Vladimir Putin, Russia has become not merely a source of instability or the occasional outrage, but an existential threat; even if it can be returned to its cage in the short term, it will be the work of decades to contain it. Predictions of Mr. Putin’s imminent demise will, I’m afraid, prove illusory, and whoever succeeds him could in any case be as bad or worse. This is not a short-term crisis, but a long-term one.
One consequence of this, clearly, will be a requirement – no longer a request – that Canada improve its contribution to the collective defence of the democracies: an increase in defence spending from its current 1.4 per cent of GDP to at least 2 per cent, and probably beyond that. (In the days of Lester Pearson, the great peacemaker, it was closer to 4 per cent.) If this were a short-term or at least finite military engagement, like the Second World War, where the troops could all be sent home at the end, we could simply add this to the debt, and pay it off over many years. But as we are probably looking at a more or less permanent increase, then some difficult choices will have to be made.
It isn’t just the Trudeau government’s pet projects – and there are many of them – that this new demand for spending will have to contend with. It is also the needs of the provinces, specifically for health care. Even before all this, the long-term fiscal prospects of the provinces were looking grim: as an aging population collides with a sclerotic and overburdened health care system, more than one of the provinces is at risk of defaulting on its debts in coming decades. Even radical reform of the health care system cannot avert this. I know the provinces have been in the habit of crying wolf. But this time, they really do need the money.
But so does the defence of the nation. The current crisis has cruelly exposed, if it were not evident already, just how threadbare our military has become: the mere provision of a few hundred rocket-launchers, anti-tank weapons, firearms and grenades to Ukraine has more or less exhausted our own stockpiles. That we need to spend more is self-evident; even more urgently, we need to spend better. Military procurement has been a national disgrace for decades. Played for politics, corrupted by lobbyists, and caught between competing regional interests, projects have routinely come in years late and billions of dollars over budget. Perhaps we could afford this nonsense in the past. We cannot now.
I said everything has changed. But in truth, the golden age we have left behind was never really a golden age. Even that complacent 2019 budget projected economic growth in future years of just 1.8 per cent a year, on average, after inflation – half as fast the economy grew in the 1970s and 1980s, a third as fast as in the 1960s. The only way we will ever be able to afford all of the many new burdens we are piling onto the tax system is if we can generate faster growth – much faster. That is an issue that this government has been content to ignore until now – every bit as much as it has ignored our national security.
So as much as everyone will be looking to see whether, in the coming budget, the government grasps the scale of the new challenges facing Canada, it will also be crucial that it includes, at long last, policies to address the old.
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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.
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