Sometime soon, the Trudeau government will release its 2024 fall economic statement, which provides an update on the government’s budget released earlier this year. Critically, it’s also an opportunity for the government to rethink its approach and shift gears. How’s how the government can change course and start moving in the right direction.

First, this fiscal year (2024-25) the Trudeau government will run a projected $39.8 billion budget deficit, its 10th consecutive deficit since taking office in 2015-16. The government also plans to continue its string of deficits up to 2028-29. Due to this reliance on deficits, federal gross debt has nearly doubled from $1.1 trillion in 2015-16 to an expected $2.1 trillion in 2024-25.

Though the Trudeau government fails to acknowledge it, this approach has imposed significant costs on Canadians—particularly younger generations. To reduce those costs, the government must finally get serious about balancing the budget and chipping away at the mountain of debt it’s accumulated.

What does that look like?

The government’s inability or unwillingness to limit spending growth has produced this string of deficits. But by reducing annual program spending (total spending minus debt interest) by 2.3 per cent ($11.0 billion) over two years, the government could balance the budget in 2026-27.

While this is not an insignificant spending cut, it’s smaller than reductions by previous governments including the 9.7 per cent reduction in program spending by the Chrétien Liberals following the 1995 budget. And modest spending reductions provide fiscal room to meaningfully reduce tax rates while balancing the budget.

This would address a second issue that the government should address in the fall economic statement—namely, Canada’s lack of tax competitiveness. Canada competes with other countries around the world to attract investment, skilled workers, entrepreneurs and businesses—all of which contribute greatly to the economy. Lowering tax rates is one way we can be more attractive.

For example, Canadians in every province face a higher combined (federal and provincial/state) marginal personal income tax rate than Americans in nearly every U.S. state, across a variety of incomes. And the Trudeau government’s recent increase to capital gains tax has eroded Canada’s competitiveness even further by reducing the returns that individuals and businesses receive from investing.

So where should the government reduce spending?

While the government should review all spending, there is some low-hanging fruit. For example, in 2024-25 the government plans to spend $1.5 billion on corporate welfare—subsidies to select companies and industries—through seven regional development agencies across the country. However, research shows that corporate welfare merely picks winners and losers in the market, and does little to promote the widespread economic growth that raises living standards.

In its upcoming fall economic statement, the Trudeau government should shift gears and establish a plan to balance the budget and lower tax rates for Canadians. Clearly, a change in direction is long overdue.