Canada Could Balance Budget in 2 Years With ‘Modest’ Spending Cuts: Report

The Peace tower on Parliament Hill is reflected in the windows of the Bank of Canada in Ottawa on June 1, 2022. The Canadian Press/Adrian Wyld

Ottawa could balance its budget in as little as two years with “only modest spending restraint,” a new study has found.

Limiting growth in annual program spending to 0.3 percent would result in a balanced budget by 2026-2027, the Fraser Institute said in its latest study. Balancing the budget by 2025-2026 is also achievable, the report said, but would require a 4.3 percent reduction in program spending.

“This accumulation of debt, along with recent hikes in interest rates, has raised the cost of interest on the federal debt to one of the largest budget expense items,” Fraser Institute director of fiscal studies Jake Fuss said in a Feb.13 release.

“The federal government should prioritize balancing the budget so taxpayers aren’t saddled with future tax increases to pay ever-increasing interest on federal debt, there are options—now it’s just a question of whether they have the good sense to use them.”

Ottawa’s fiscal situation has been deteriorating since 2015, the report said. Annual program spending has grown an estimated $193.6 billion over the past nine years, costing Canadians an extra $2,330 per person.

The document said spending has been increasing faster than population or inflation, resulting in “a string of large budgetary deficits.” According to the report, this increased spending has contributed an additional $941.9 billion to the federal debt between the fiscal years of 2014-2015 to 2023-2024.

“The Trudeau government’s tenure has been characterized by uninterrupted deficits leading to significant debt accumulation, primarily as a result of continued and often marked increases in program spending,” the report’s authors wrote.

“This accumulation of debt, along with recent hikes in interest rates, has raised the cost of interest on the federal debt to one of the largest budget expense items.”

Past Precedent

Getting the budget and government spending under control is not a pipe dream, the report said, citing the efforts of the Jean Chrétien government in 1993 which “was facing a worse fiscal situation than today.”

“The Chrétien government inherited federal finances that were heavily reliant on borrowing and a total level of debt that threatened to spiral out of control unless there was a change in course,” the report said, adding the Chrétien Liberals were able to return Ottawa to balanced budgets in three years by implementing “significant spending reform.”

Combined with similar reforms in the provinces, Mr. Chrétien’s cuts allowed Canada to experience “economic success” during the remainder of the 1990s and well into the 2000s, the report noted.

Potential Spending Reductions

The report suggests three potential areas for spending cuts: Business subsidies, government wages, and inefficient government processes.

“Business subsidies are a significant expense, yet research suggests they have little if any economic benefit, and may actually harm economic growth when governments pick winners and losers in a free market,” the report’s authors wrote. “Reviewing business subsidies might provide opportunities to find savings.”

The report noted federal government workers, on average, enjoy an 8.5 percent wage premium over private-sector workers. Aligning government-sector wages with those in the private sector would offer substantial savings, the authors suggested.

Some real savings could also be realized by examining federal systems and procedures, the report said.

“From 1988 to 2013, more than 600 government failures cost the federal government between $158.3 billion and $197.1 billion,” the authors wrote. “Moreover, more than 25 percent of all federal COVID spending was wasteful.”

The report said eliminating “fiscal waste” by looking for inefficiencies within government processes would also help Ottawa to cut costs.