Fraser Forum

Some questions for Prime Minister Trudeau

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Prime Minister Trudeau has launched a cross-country listening tour to reconnect with Canadians. Given the tumultuous times, the prime minister’s time might be best spent in Ottawa leading the government, but since he’s listening, here are a few questions.

First, the Liberal Party ran on, and is now governing with, an over-arching goal of improving economic growth, particularly for the middle class. The plan for improving growth is to increase government spending substantially and finance almost all of the new spending through borrowing (i.e. deficits).

The 2016 Budget called for federal spending to increase by nearly $70 billion between 2014-15 and 2020-21, a 27.3 per cent increase in government spending.

To finance this spending, the government will rely on borrowing, increasing the national debt (specifically net debt), by $132.1 billion from $687.0 billion in 2014-15 to a projected $819.1 billion in 2020-21.

The key question for the prime minister is: where is the improvement in economic growth given all the spending?

The Liberal plan provided detailed estimates of the additional economic growth and job-creation that would flow from the increased spending. The reality, however, has been a reduction, not an increase in expected economic growth. In other words, economic growth has declined while federal spending has increased.

Back in November 2015, just weeks after being elected, the Liberals released the 2015 Fall Update of Economic and Fiscal Projections, which forecasted average economic growth (in real terms) of 2.1 per cent over the next five years. In March, the Liberals delivered their first budget, which cut average growth to 1.9 per cent. The 2016 Economic Statement cut average growth again to 1.7 per cent over the next five years.

As we noted previously, the decline in growth rates will lead to a material reduction in expected national income (GDP) in each of the next five years. Over the past year, for example, expected GDP for 2016 has dropped by $58 billion or $1,590 per Canadian. Add up the reduced GDP expected over the next five years and the result is a staggering $403 billion or nearly $11,100 per Canadian.

Another important question for the prime minister—when will his government balance the budget? Contrary to the Liberal campaign commitment, there’s no balanced budget in the foreseeable future. Indeed, the Department of Finance now expects deficits every year through to at least 2055 and the national debt will reach $1.5 trillion by 2045 (or so).

Ironically, one of the main reasons for the deterioration in the long-term projections is that prospects for economic growth have declined. The department estimates that the economy will grow by an average of 1.8 per cent until 2021, and then decline to 1.6 per cent through to 2030. This compares with average economic growth of 2.8 per cent between 1970 and 2015.

A logical question is whether the prime minister will reconsider his government’s approach to deficits and debt given the lack of improved economic growth. If not, the increased spending seems more like the financing of Liberal pet projects than it does sound economic and financial policy.

Next, it’s clear that the federal government is replicating some of Ontario’s policy playbook (including massive, deficit-financed spending). Indeed, key members of the Ontario Liberal government are now central figures in the Prime Minister’s Office. Another question, then is why the prime minister favours policies implemented in Ontario that have failed so badly?

The heavy-handed economic interventions by the Ontario government over the last decade, particularly in energy markets, have been disastrous for the province—skyrocketing electricity prices coupled with a dearth of private-sector investment. Simply put, Ontario has become an inhospitable place to do business and the Prime Minister Trudeau seems intent to follow Ontario’s lead on key policy issues.

As the prime minister tours the country, there’s a real opportunity for him to reconnect with the reality of his government’s policies and how they are making things worse rather than better. If that creates the foundation for a change in policy, then the listening tour will be well worth the costs. One suspects, however, that the tour is more about changing the policy conversation, from the reality of the federal government’s approach to the charisma and personal charm of the prime minister.


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