A feel-good federal budget that fails to spark economic growth

The Liberals embrace a $30-billion deficit without making jobs a priority

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Roslyn KuninThe new Liberal government’s first federal budget contains few surprises – except, of course, in how far it has strayed from election campaign promises.

In recent weeks, Prime Minister Justin Trudeau’s government has said more than enough to let us know what was to come in the budget.

The surprise? Compare Tuesday’s budget numbers to the campaign promises. During the election run-up, the Liberals promised a $10-billion deficit this year, after which they would quickly revert to a balanced budget. That money was to provide infrastructure and generate economic growth.

But the country looks different now. The budget pegs this year’s deficit at just under $30 billion, with a similarly large amount next year. And don’t expect a balanced budget for the foreseeable future.

Deficit spending can be good if invested in our economy. The resulting growth will raise our standard of living and generate tax revenue to pay off the debt that deficit spending creates.

But in the long run, deficits become dangerous when they lead only to more consumer spending. Then we have no new revenue to repay the debt. And that means future government revenues must be used to pay old debts rather than help Canadians or our economy.

This budget’s positive news is that many good people and good causes will benefit in the short run. The bad news is that there is very little here to generate growth now and into the future to pay for this largesse. The budget is expected to create economic growth of less than one-quarter of one per cent this year and less than half of one per cent next year.

Let’s look at some of the budget’s biggest components:

  • First Nations get $8.4 billion over the next five years. Putting money into housing, water and waste water treatment for indigenous people is definitely needed. So is the $40 million to investigate murdered and missing women and girls, if only to ensure there are no more such tragedies. However, this spending creates no short-term economic growth.

Investing in First Nation child welfare and education does lead to improved well-being and economic growth. However, it will be a decade or two before a child who grows up healthier, safer and better educated starts contributing to the economy.

  • Veterans’ services get $5.6 billion over five years, restoring previous cuts. Our veterans put their lives on the line for us and we owe them. If additional services help veterans contribute after their service, that helps everyone. But are there enough of them to change the big picture?
  • Families and their children get $3.7 billion, after other benefits for families are removed. Maximum benefits go to families with incomes under $30,000, but partial benefits will be provided until family income reaches $180,000. Especially in the lower income groups, this is a good investment in the next generation. But, again, it will be decades before we see an economic payoff.
  • Seniors get $3.4 billion more over five years. For the almost one million seniors who receive the Guaranteed Income Supplement, this is welcome. The rest allows the government to restore the eligibility age for pensions to 65 from 67, and that’s counterproductive. As life expectancy passes 80 and rises, paying pensions at 65 is far too costly. Most Canadians at that age are healthy and able to work in order to maintain their standard of living. For the rest, there is disability coverage. Putting people out to pasture at 65 makes Canada a poorer country.
  • Increasing employment insurance eligibility in areas where there are few jobs will also make Canada a poorer country. The budget will do so in 12 regions. Paying people to stay in areas with too little work makes little sense. Instead, workers should be offered incentives to move to areas where they are needed and/or can improve their skills.

This budget projects a lot of spending on good things, but not the kind of things that create the economic growth we need. Canadians are often accused of carrying too much consumer debt. It looks like our government is doing the same thing with little payback.

Troy Media columnist Roslyn Kunin is a consulting economist and speaker. 

© Troy Media


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The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

Roslyn Kunin

Dr. Roslyn Kunin is chair of the board of the Haida Enterprise Corporation, on the board of the Michael Smith Foundation for Health Research and has been a Director of the Business Development Bank of Canada, chair of the Workers Compensation Board of British Columbia and member of the National Statistics Council of Statistics.

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