By Jake Fuss,
and Milagros Palacios
The Fraser Institute
The 2019 federal budget, delivered last month, firmly establishes the fiscal legacy of Justin Trudeau. It’s not a positive legacy.
No Canadian prime minister has spent more money per person (all figures inflation-adjusted) or accumulated more debt per person outside of a world war or recession.
Canada’s gross debt will increase this year by almost $120 billion (again, adjusted for inflation) since the previous Conservative government tabled its last budget in 2015. On a per-person basis, each Canadian has acquired $1,725 more in federal debt since Trudeau took office.
A recent study measuring the debt performance of all prime ministers since 1870 found that only three who didn’t face a world war or recession increased federal debt on a per-person basis: Mackenzie Bowell, John Abbott and Justin Trudeau.
By the time Trudeau completes his current term, federal debt per person is projected to increase by 5.6 percent, more than any prime minister who didn’t preside over a world war or recession. Further, Bowell and Abbott served as prime ministers in the late 19th century, which means Trudeau is the only prime minister this century or last to increase federal per-person debt without a global conflict or economic downturn.
Rising public debt matters. With mounting debt comes rising interest costs, which consumes resources that could otherwise be used to fund important public services or provide tax relief. By raising debt today, the federal government burdens future generations, who must pay higher taxes tomorrow to finance benefits consumed today.
This recent and sudden accumulation of debt is due to the rapid increase in program spending that immediately followed the fall 2015 federal election. The government has steadily ramped up program spending, by 25 percent over four years, reaching $323.5 billion for the year ended March 2019.
Had the federal government simply frozen per-person program spending (in real terms) at 2016 levels, total program spending last year would have been $6.3 billion lower. The government’s appetite for spending has brought federal per-person program spending to an all-time high, at $8,869 last year. That eclipses the previous high ($8,847) recorded by Prime Minister Stephen Harper during the Great Recession in 2009.
The current government has recorded the third and fourth highest per-person spending years. It’s easy to see how it has amassed so much debt so quickly.
However, it’s harder to understand why the government has chosen rapidly accumulating debt and increasing program spending, at unmatched levels, during a period of economic growth. This is a prescription for trouble when the economy slows.
Rapidly accumulating debt, accompanied by repeated and hasty spending increases, is not a sustainable financial strategy. At the end of his first term, will have established an oddly chosen legacy.
Jake Fuss, Finn Poschmann and Milagros Palacios are economists with the Fraser Institute.