Before the federal government’s Fall Economic Statement last month, we often heard words like “restraint” and “prudence.” Less so afterwards. The statement’s projections confirm that every new forecast from Ottawa shows the federal government getting bigger faster, with every area of spending swelling more by the year.
The government’s last pre-COVID projections were in its 2019 fall statement. The final fiscal year in those projections was 2024/25, when federal spending was slated to hit $421 billion.
The government used the pandemic as an excuse to present no budget in 2020, an unprecedented failure for it and for Parliament as a whole. It did present a fall statement late in the year, however. To compare that statement’s spending projection for 2024/25 with that from 2019, we have to add back some costs of pensions for federal employees that the government had meanwhile taken out. With them in, the 2020 statement projected federal spending of $429 billion in 2024/25. More than the 2019 statement, but not much. With COVID emergency spending gone, spending was up $8 billion, or two per cent, over the four years.
Go forward another year, to the fall statement of 2021. Add the pension deficit back to spending, where it belongs, and the 2021 statement projected federal spending of $465 billion in 2024/25. That is way more than the 2019 statement – up $44 billion or 11 per cent. Not because of COVID-emergency measures but because every other major category of spending — government employee salaries and benefits, interest on the debt and transfers to households, other governments and businesses — was way up.
But it gets worse. In this year’s fall statement the increases have ballooned again. Spending in 2024/25, including the pension deficit, hits $505 billion. That’s $84 billion — or 20 per cent — more than forecast just three years ago in 2019. And none of it reflects COVID. Rather, it’s everything else: transfers to every type of recipient, operating costs and interest payments on the government’s now much larger debt.
What’s really of concern is that the 2019 fall statement was itself no model of restraint. It anticipated $365 billion in spending in the fiscal year then under way, 2019/20. That was 30 per cent more than the Conservative government had spent in 2015. The $421 billion it projected for 2024/25 amounted to a further 15 per cent increase. Proposing to jack the government up by yet another 20 per cent — as the most recent statement does — would have looked reckless in 2019.
The latest $84 billion increase is more than everything Ottawa transferred to the provinces for health, social programs and equalization in 2019 — and more than it spent on any single program. If Ottawa were $84 billion smaller now, it could stop collecting corporate income taxes. Or it could eliminate the GST and all other consumption taxes.
It is no defence to note that some of the extra spending prefigured in the 2022 Fall Economic Statement reflects higher inflation than anticipated in 2019. Yes, by 2024/25, pensions to MPs and other federal employees, seniors’ benefits and other indexed payments will be higher. So will current salaries of federal employees, whose unions will seek to match or beat inflation. So will interest payments on the federal debt, boosted both by the effects of inflation itself and the Bank of Canada’s efforts to rein it in. But higher prices can account for only one-third of the increase, and the government’s own spending and borrowing from the Bank of Canada boosted the inflation that accounts for the other third.
Moreover, we have every reason to expect yet more spending increases by this time next year. Ottawa has been discussing higher health-care transfers to the provinces. Those are not in the projections. Pharmacare is also in the works but not in the projections. The government’s recent outline for cutting greenhouse gas emissions involves tens of billions of dollars of expenses on electricity generation and transmission alone — also not in the projections. With inflation inflating tax revenues and fresh evidence in the fall statement that “surprise” revenues translate into “surprise” spending, next year’s fall statement is guaranteed to show 2024/25 spending that is higher yet.
Fiscal projections that turn out to be fiction are an insult. It is time for restraint and prudence, not just in the rhetoric and the projections, but in the actual reported numbers. It should not take a recession or a financial crisis to reveal that relentlessly spending more on everything leads nowhere good.
William Robson is CEO of the C.D. Howe Institute, where Alexandre Laurin is director of research.
Published in the Financial Post
