Parliament should work toward budget balance for sake of Canadians

As the summer recess ends, MPs will return to Parliament amid swirling political winds. But hopefully for Canadians, the parties work toward a plan to balance the federal budget.

In 2024/25, it’s expected the Trudeau government will run its 10th consecutive budget deficit, primarily due to high levels of spending. Indeed, Prime Minister Trudeau has overseen the six highest years of program spending in Canadian history (2018-2023)—even after excluding COVID-related spending—on a per-person basis adjusted for inflation. And deficits and high spending are expected to continue for the foreseeable future.

Consequently, since 2015/16 federal gross debt has approximately doubled from $1.1 trillion to an expected $2.1 trillion by the end of 2024/25. While a growing debt burden ultimately means higher taxes on future generations, it also today means higher debt interest costs, which have more than doubled since 2015/16. In fact, this year more than $1 in every $10 the federal government collects in revenues will be used to service debt, rather than provide services or tax relief for Canadians.

Given the risks associated with persistent spending-driven deficits, parliamentarians should focus on balancing the budget. The chart below shows how to achieve that goal.

Specifically, if the federal government limited growth in annual program spending (total spending minus debt interest) to 0.2 per cent for two years (beginning in 2025/26) it could balance the budget by 2027/28. Once the budget is balanced, the government could resume increasing spending at a quicker pace and still run a surplus in 2028/29.

During the mid-1990s, the Chrétien Liberal government employed a similar approach to balance the budget for the first time in three decades and avoid a fiscal crisis. The government reviewed all areas of federal spending with the twin objectives of eliminating the deficit and ensuring Canadians received value for their tax dollars. By balancing the budget through a shift towards smaller and smarter government spending, the Chrétien government’s reforms helped create a decade of balanced budgets, tax relief and overall economic success.

There are clear benefits to balancing the budget.

First, it will help slow the rate of federal debt accumulation. As noted in the chart, balancing the budget would allow the federal government to avoid accumulating $64.2 billion of additional debt. Second, a balanced budget will provide fiscal room to deliver tax relief for Canadians. Given the average Canadian family spends more on taxes than on basic necessities, tax relief would provide a meaningful boost for families struggling to pay the bills.

With the fall session getting underway, parliamentarians face political uncertainty and several important policy issues. In light of the sorry state of federal finances, balancing the budget should be a top priority.