Next week’s federal budget will answer critical questions about Canada’s future

When Finance Minister Chrystia Freeland tables the federal budget next week, Canadians will have the answers to some pressing questions.

First, what will happen with federal spending?

Since taking office in 2015, the Trudeau government has significantly increased spending year after year while exceeding its own spending forecasts at nearly every turn. Prime Minister Trudeau is responsible for the five highest levels of federal spending per person (excluding interest costs) in Canadian history between 2018 and 2022. Inflation-adjusted spending levels today are roughly 24 per cent higher than when the government was first elected in 2015.

Of course, the amount of money spent by the federal government each year denotes the share of the country’s available resources consumed by Ottawa rather than being available for Canadian families, entrepreneurs and businesses. This is one of the reasons why it’s imperative for the federal government to be more responsible with its spending in the upcoming budget.

Moreover, Ottawa must not inflame inflation further. If the federal government ramps up spending this spring, Ottawa will make it more difficult for the Bank of Canada to tackle inflation and perhaps cause interest rates to be higher than they otherwise would be. Minister Freeland acknowledged as much by stating it would be ill-advised for governments to “pour fuel on the fire of inflation.” However, based on this government’s track record on spending, it’s unlikely she will follow her own advice.

Another looming question is whether the government will commit to a balanced budget before the end of its current term in 2025? The Trudeau government is on track to run eight successive deficits despite earlier promises of a return to black ink by 2019. Consequently, federal debt (total debt minus assets) as a share of the economy increased from 31.9 per cent in 2015 to 45.2 per cent in 2021.

In its most recent fall fiscal update, the government outlined a plan to run four more deficits and included an inauspicious goal of returning to balanced budgets by 2027. However, even this weak target seems unlikely given the rosy economic assumptions it was premised on and recent announcements on health-care funding, campaign commitments yet to be fulfilled, and the introduction of new programs such as national pharmacare that weren’t included in the forecasts.

Lastly, what will the government do to improve economic performance?

A study from the Organization for Economic Cooperation and Development (OECD) showed Canada is expected to rank dead last among 32 advanced countries on growth in per-person GDP (inflation-adjusted) during both 2020-2030 and 2030-2060. Since strong economic growth is the pathway to higher living standards for Canadians, these forecasts should raise alarm bells in Ottawa.

Other economic challenges include the aging of the population, declining business investment, high levels of inflation and a possible recession. And the country’s tax rates on businesses and personal incomes are markedly uncompetitive with other countries, making it difficult for us to attract and retain high-skilled workers and entrepreneurs. Solutions to tackle these challenges and restore strong economic growth must be a prominent centrepiece of the coming federal budget.

So, how will next week’s federal budget address rising government spending and debt, and weak economic prospects? If it’s more of the same, we’re unlikely to solve anything and economic conditions in the country could get worse.