As the Liberal government in Ottawa starts ramping up for the big celebrations October 19th of Prime Minister Justin Trudeau’s 20 years in power, fiscal storm clouds loom. A gradual but modest rise in interest rates, the continuation of a decade and a half of slow economic growth and several supply and demand shocks have laid bare the unsustainability of Canada’s public finances. Now, as autumn 2035 approaches, we face what is clearly turning into a fiscal crisis.
What got us here? The easy answer is the economic and fiscal impact of the COVID-19 pandemic that wreaked havoc on the economy and public finances in 2020 and 2021. The federal and many provincial governments saw the ratio of their net debt to their GDP jump 20…
On Wednesday, the Bank of Canada left its target for the overnight rate at 25 basis points while scaling back its quantitative easing (QE) program, reducing the pace of its purchases of Government of Canada debt from $3-billion a week to $2-billion. Lifting its foot off the QE pedal is warranted given recent inflation readings and other underlying metrics. At the same time, however, the unchanged overnight rate target actually represents an easing of monetary policy since the bank’s last announcement six weeks ago, because inflation expectations have increased, and the recovering economy has probably raised the level of the overnight rate that would be consistent with steady growth and 2-per-cent inflation.
Let’s unpack these two…
Ottawa's unheralded austerity plan: Cuts to the federal government's payroll - Financial Post Op-ed
Surging transfer payments financed by unprecedented borrowing have dominated the fiscal headlines since the spring of 2020. By contrast, the sharp run-up in Ottawa’s operating costs since 2014 has hardly registered. As the pandemic recedes and its fiscal aftermath comes to dominate policy discussions, Ottawa’s burgeoning overhead — mainly due to compensation — will come under close scrutiny. As in the proverb, after seven fat years, seven lean years loom.
If not for the distraction of the pandemic, which allowed the government to get away with not presenting a budget in 2020, Ottawa’s surging operating and employment costs would have attracted attention by now. In the 2014/15 fiscal year, federal expenses other than transfer…
