MNI INTERVIEW:Busted Canada Debt Goal Means Pain Later-Ex Aide
"They don't have an anchor anymore," Robert Asselin says.
Canada’s continued deficit spending growth has broken the government’s last fiscal anchor and means more painful future choices around cutbacks or tax increases, former senior government advisor official Robert Asselin told MNI.
Chrystia Freeland’s latest budget Tuesday announced about CAD42 billion of new spending over five years, bringing total commitments since 2021 when the Covid pandemic was easing to CAD345 billion, according to Asselin. He was a senior advisor to former Finance Minister Bill Morneau and advised prime ministers Justin Trudeau and Paul Martin, and now is a senior VP at the Business Council of Canada.
“Government was swimming in money given the post Covid boost, inflation numbers, nominal GDP, commodity prices, and this is all coming to an abrupt end,” he said. “Now we are seeing the new fiscal framework and it’s not pretty.”
Freeland’s budget broke an earlier pledge to keep lowering debt as a percentage of GDP, with the ratio climbing to 43.5% from 42.4% in the fiscal year starting April 1. The deficit for fiscal 2023-24 climbs to CAD40.1 billion versus an estimate last fall of CAD30.6 billion.
“Just to state the obvious, they don’t have an anchor anymore. The debt to GDP is going up, you can’t have an anchor that’s going the way it’s not supposed to,” Asselin said.
TOUGHER BUDGETS LATER
“Imagine if there’s a recession, and stagflation essentially, next year will be again higher. It just shows the debt-GDP ratio was never a real anchor, post pandemic,” he said.
The budget does have helpful elements including tax credits for green electricity, Asselin said, and the extra deficit spending doesn’t significantly add to inflation this year, which was one of Freeland’s main priorities.
The Liberal government’s continued rollout of new spending creates a longer-term problem, Asselin said. Better fiscal policy would set a target for something like debt servicing costs, he said.
“At one point, they are either going to have to raise taxes or cut spending, and they can’t just punt these choices indefinitely,” he said.
“This is what I’m worried about, they are punting essentially the difficult choices to future years, and it will make for tougher budgets down the road.”