Emmanuelle B. Faubert, economist at the MEI
OTTAWA – The Trudeau government’s broken pledge to keep the deficit below $40.1 billion for 2023-2024 is one more sign the government has lost control of federal finances, asserts an MEI researcher in response to the Fall Economic Statement presented earlier today.
“It’s no wonder Prime Minister Justin Trudeau hesitated to release the fall budget update; this government can’t even adhere to the most modest fiscal restraint target that it set for itself,” says Emmanuelle B. Faubert, economist at the MEI. “Not only is this year’s deficit significantly higher than projected back in April, but the Trudeau government also broke the promise it made to Canadians that last year’s shortfall wouldn’t exceed $40.1 billion.”
In April, then Finance minister Chrystia Freeland promised Canadians that her government would abide by three “fiscal anchors.” She pledged the 2023-2024 deficit would come in below $40.1 billion. She pledged the deficit would decline as a share of GDP this year and reach one per cent by 2026-2027. And she pledged the debt would decline as a share of GDP.
In the Fall Economic Statement published today, the latest estimates from the Department of Finance put last year’s deficit at $61.9 billion, which is $21.9 billion above what was expected in the budget, and well above the $40.1-billion threshold.
The deficit for the current financial year has also been revised upwards by $8.5 billion. It is now projected to reach $48.3 billion. Federal spending, meanwhile, is up $4.9 billion from what the department of Finance had projected last April.
Interest on the debt this year is expected to cost Canadians $53.7 billion, which is more than the revenue the expects to get from the Goods and services tax.
The researcher points to a large increase in the size of the bureaucracy as another sign the government has lost control of its spending.
“Since this government first came to power, the size of the federal bureaucracy has grown by over 100,000 employees,” explains Faubert. “As you can imagine, all these new bureaucrats come with a large price tag, which contributes to these chronic deficits.”
Between March 2016 and March 2024, the size of the federal civil service has grown by 108,793 employees, to reach 367,772 employees. This represents a 42 per cent increase in the span of only eight years.
The MEI researcher also expressed concern over the government’s decision to increase the capital gains inclusion rate.
“Ottawa’s problem isn’t a lack of revenues, but rather that it can’t keep the growth of its spending in check,” explains Faubert. “That much is exemplified by the capital gains tax hike, which has done very little to help federal finances, but will also make it that much harder to attract investment into our country.”
In the budget it tabled last April, the government announced it would increase the capital gains inclusion rate from 50 per cent to 66.7 per cent starting in June. The government expected this would yield $19.4 billion in revenue over five years, with $6.9 billion expected to be collected this year alone.
In a publication released in May, the MEI warned this tax hike would have a detrimental effect on business investment and entrepreneurship.
The MEI is an independent public policy think tank with offices in Montreal, Ottawa and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
