Pierre Poièvre’s argument against the federal Liberal government is based on the very simple premise that excessive federal spending is the root of all evil. The Tory leader says federal spending drives up inflation, and inflation drives up interest rates, and the combination of the two makes everything scary.
With that in mind, Mr. Poilievre understandably said, Excited Highlight on Monday Analysis published by Scotiabank They found that government spending was ultimately responsible for pushing the Bank of Canada’s key policy rate 200 basis points higher than other policy rates.
“Scotiabank has said that interest rates have increased by two percentage points because of the government deficit,” Poièvre told the House of Commons.
The fine print is of little use to Conservative leaders. Seventy of these basis points relate to spending by state governments, most of which are currently run by Conservative premiers. The remaining 20 points are the responsibility of local governments.
Still, 110 basis points (equivalent to 1.1 percentage points) are tied to federal spending over the past four years. But 80 points of that came from federal spending to support individuals and businesses during the pandemic.
Liberal Housing Minister Sean Fraser ultimately decided to point this out to the Conservatives. He asked opposition parties to imagine what the situation would be like now if the government had not provided this support.
The current political, economic, and fiscal realities (defined by persistent inflation and rising interest rates) are the focus of Finance Minister Chrystia Freeland’s fall economic update, which was put on the table Tuesday afternoon. It seemed like it was still written there.
“The cornerstone of our fall economic announcement is responsible fiscal planning,” Freeland told the House of Commons.
The relative responsibility of the Liberals’ fiscal policy dates back to the moment during the 2015 election campaign when Prime Minister Justin Trudeau said the government he led would create deficits to fund his chosen priorities. It has been the subject of debate ever since.
For two decades, from 1995 to 2015, the conventional wisdom was that running deficits was inherently bad and only marginally acceptable in times of economic crisis. And that hold on the Ottawa authorities has proven very difficult to shake off.
Admittedly, the Liberals are not helping their cause by running a higher budget deficit than they promised. But in his remarks to the House of Commons, Mr. Freeland emphasized the relative health of the federal government’s books, at least when compared to other G7 countries. He also noted the administration’s current efforts to reduce or repurpose $15 billion in federal spending.
The new spending announced Tuesday is relatively restrained. Freeland didn’t have a small budget like the recent fall update. The challenge of the times seemed to be to find what the government could do without injecting large amounts of new funds. And nearly all of the new measures are aimed at addressing cost-of-living concerns that currently dominate federal politics.
“We are careful to avoid inflating by carefully targeting new investments to meet Canadians’ current priorities and fiscally sustainable future growth,” Freeland said. ” he said.
Fiscal hawks are circling
Poilievre was not impressed.
“With this $20 billion in big new spending, this update can be summed up very simply: higher prices, higher rents, higher debt, higher taxes and time is running out,” Tory leader Freelance said. He spoke after Rand finished his speech.
He said Conservatives would vote against “this disgusting plan”.
Despite Poiwable’s ridicule, the Liberal Party appears to be struggling with some fundamental realities. The economy slowed as the Bank of Canada raised interest rates to combat inflation. The government needs to be careful not to cause inflation. There is also the possibility that they may be concerned about disappointing credit rating agencies. Meanwhile, rising interest rates have increased the cost of servicing the federal debt.
featured videosConservative leader Pierre Poièvre criticized the more than $20 billion in new spending promised in the federal government’s autumn fiscal update.
Even if the government wanted to spend more money now, it seems to have decided that its room for action is limited.
This will likely complicate the NDP’s hopes for a national single-payer pharmacare program to be implemented over the next two years. But Poilievre and other fiscal hawks will still have much to worry about here.
Compared to the outlook presented in the spring budget, this year’s deficit remains almost unchanged. However, the shortfall is expected to widen over the next four years.
The federal debt as a share of the economy (debt-to-GDP ratio) is still expected to decline in the medium term, but is expected to rise slightly to 42.7% next year. The annual public debt burden – the interest governments pay on their total debt – is also currently projected to peak at 1.8% of GDP, double the pre-pandemic level.
These numbers are by no means unprecedented. The debt-to-GDP ratio will be 42.7%, about the same as when Jean Chretien left office. The public debt burden as a percentage of GDP was even higher until 2007.
Can the Liberals convince Canadians that it’s all worth it?
If Tuesday’s update avoids inflation and higher interest rates (and makes voters happier as a result), the Liberals may consider this a success. But that may still be only half the battle.
Poilievre’s argument is not simply that the government is spending too much. He also argues that even with all this money invested, little has been achieved. This is also not a new criticism, but one that the Liberal Party has long struggled to counter.
This is also a more relevant discussion. The size of the federal spending budget has always been of less interest than what is done with it. And it appears essential to the Liberal Party’s cause heading into the next election that the government can claim to have achieved something with these deficits.
In his budget speech and in the economic report itself, Mr Freeland highlighted the implementation of the Liberals’ child care program and the money saved by families with young children as a result.
But memories are short, and voters are clearly in no mood to reward the Liberals for implementing a national child care program. That may be why the finance minister spent nearly half of his speech talking about housing.
“Our country needs more homes, and we need more homes urgently,” Freeland said, pledging to tackle the issue with “purpose, drive and enthusiasm.”
No matter how much the government spends on housing construction or the size of the resulting budget deficit, voters will want some tangible signs of progress.
