Debt incurred by the federal government was already at a record high before COVID-19 struck Canada, according to a new study, which argues that the escalating spending and deficits in the five years before 2020 had seriously exacerbated the country’s current fiscal challenges.
“The COVID-19 pandemic has no doubt worsened Ottawa’s fiscal challenges, but it did not create them. Imprudent spending by the federal government in the years leading up to COVID added billions in debt before the pandemic struck,” said study co-author Jake Fuss, a senior economist at the Fraser Institute, in a March 1 press release.
The study, titled “Ottawa’s Pattern of Excessive Spending and Persistent Deficits,” finds that prior to the pandemic, the Liberal government had accumulated $160 billion in debt—an amount that exceeds the debt that would have been incurred had the government restrained its spending to match the rate of economic growth.
Citing data from the Department of Finance’s Fiscal Reference Tables December 2021, the authors noted that since Prime Minister Justin Trudeau took office in 2015, the federal government ran five successive budget deficits that ranged from $2.9 billion to $39.4 billion between the fiscal years of 2015–16 and 2019–20.
The study contrasted the increase in spending by the Trudeau government with the previous Conservative government under Stephen Harper, who also ran budget deficits for five years, from 2010–11 to 2014–15, but with the deficit shrinking yearly from $35 billion to just $550 million before the Conservative government left office in 2015.
“By 2019–20, federal net debt had climbed to $812.9 billion, an increase of $112.2 billion from the debt level in 2014–15—the last full fiscal year under the Harper government,” the report said.
The study also found that the growth in federal program spending under the Liberals exceeded the growth in revenues during the same period.
“In fact, the federal government increased program spending by 36.1 percent, from $248.7 billion in 2014–15 to $338.5 billion in 2019–20,” the study said.
To put the increase in spending by the Liberal government into context, the authors compared it to federal revenue growth and two economic indicators—nominal GDP growth and the combined effects of inflation and population growth.
Using the data from Statistics Canada and the Department of Finance, the authors calculated that total federal revenues grew by an average of 3.7 percent yearly between 2015–16 and 2019–20, whereas the spending increased by 6.4 percent, outpacing the nominal GDP growth at 3 percent, and inflation plus population growth at 2.9 percent as well.
The study argued that if the Trudeau government had restrained its spending to match either the nominal GDP growth or the inflation-plus-population growth during that period, they would have recorded surpluses nearly every year and avoided taking on $150 billion to 160 billion in debt before the pandemic hit.
“If program spending had been held to the rate of nominal GDP growth, Ottawa’s average annual budget balance would have been a $13.1 billion surplus over the period, compared to a $18.8 billion deficit,” the authors wrote.
“If program spending had been restrained to the rate of growth of inflation plus population, the average annual budget balance would have been a $11.2 billion surplus.”
Study co-author Tegan Hill, an economist at the Fraser Institute, said the additional spending by the federal government in the years leading up to COVID has put Canada in “worse fiscal shape to deal with the pandemic.”
“Generations of Canadians will be paying for Ottawa’s high spending and additional debt, a situation that was exacerbated, but not caused by, the COVID-19 pandemic,” she said in the press release.
