Freeland takes over during massive federal spending spree

It’s out with the old and in with the new in Ottawa as Chrystia Freeland replaces Bill Morneau as federal finance minister. Freeland takes over during a dramatic time in Canadian history, so it’s worth reviewing the history of federal revenue and spending.

The chart below provides real (in 2014 dollars) per-capita Canadian federal government revenue and spending from 1870 up to the projected numbers for 2019-20 and 2020-21 (as taken from the recent Federal Economic and Fiscal Snapshot 2020).

Virtually overnight, total federal real per-capita spending increased from $8,961 in 2018-19, to a forecasted $9,399 in 2019-20 and $15,100 in 2020-21. This 61 per cent increase in real per-capita spending for 2020-21 is the third-highest increase ever, behind only 120 per cent in 1942 and 74 per cent in 1940. In other words, the war on COVID-19 appears to have generated smaller increases in per-capita spending than the war to make the world safe for democracy.

However, in strict per-capita dollar amounts, 2020-21 is the most ever spent per capita. Moreover, this spending is accompanied by the largest annual drop revenue (-23 per cent) in federal fiscal history. One has to go back to 1914 and 1930 (each at -21 per cent) to find something of similar magnitude.

As a result, the federal budget deficit in 2020-21 will be the largest in Canadian history, measured either as an absolute total (currently $343 billion) or in real per-capita terms ($8,489). Even the per-capita deficits of the Second World War or in the 1980s come nowhere near current levels.

Finally, GDP is projected to drop 6.3 per cent. As a result, the deficit-to-GDP ratio in 2020-21 will be -15.9 per cent and the federal debt-to-GDP ratio is projected at just under 50 per cent.

Clearly, Minister Freeland is in a bit of a fix given the pandemic’s impact on Canada’s finances and Morneau’s rather sudden departure to pursue career aspirations with the OECD. According to some reports, Prime Minister Trudeau and Morneau disagreed over the way forward, with Morneau not buying the grand vision with respect to climate, social policy and a transformation of the Canadian policy agenda (and society) in the wake of COVID-19.

Really?

If a 61 per cent increase in real per-capita spending took place under a “moderate” finance minister, what will federal spending look like under Minister Freeland?