Liberal Leader Mark Carney framed his fiscal and spending plan on Saturday in terms of a crisis — “the biggest crisis of our lifetimes,” as he put it.
The United States is attacking Canada’s economy and threatening Canadian sovereignty. The American president is “trying to fundamentally restructure the international trading system” and, in doing so, is “rupturing the global economy.”
“And to succeed in a crisis, you have to act with overwhelming force,” Carney said at an announcement in Ontario. “In a crisis … the private sector retreats, and government needs to step up. Government must lead and catalyze private investment.”
A little while later, Conservative Leader Pierre Poilievre appeared at his own announcement in British Columbia, where he dismissed Carney’s plan as a “spending bonanza” that Canada can’t afford.
“Mark Carney launched his platform today, announcing $130 billion in new inflationary spending,” Poilievre said.
Liberal Leader Mark Carney announced on Saturday his election platform includes $130 billion in new measures over the next four years that, when combined with existing spending, will add $225 billion to the federal debt.
The questions of exactly how much federal spending has contributed to inflation in Canada, and exactly what the alternative was — particularly as it pertains to the spending the federal government did during the COVID-19 pandemic to support households, business and other levels of government — have not been adequately debated, either in this campaign or in the months leading up to it.
But it seems fair to note that Canada was not the only country to experience inflation after the pandemic and that there were significant global factors contributing to the problem. (An analysis by Scotiabank in December 2022 attributed 85 per cent of inflation in Canada to global factors and 15 per cent to the government’s pandemic support programs.)
For now, the debate might focus on the details of Carney’s $130-billion plan — and the question of exactly what Poilievre’s Conservatives would do differently.
What Carney would do with $130 billion
While the Conservative described it as “spending,” that $130 billion includes money the federal government would lose as a result of tax cuts. The single most expensive line item in the Liberal platform is, in fact, a previously announced income-tax cut, at a projected cost of $22 billion over four years. Another $12.5 billion would go toward cancelling the capital gains changes that were proposed last spring by Justin Trudeau’s government.
In the context of a crisis, Carney might be asked whether such amounts would be better put toward other things. But Poilievre is not well positioned to criticize the cost of those two particular line items — he’s pledged that a Conservative government would also cancel the capital gains changes, and promised an income tax cut that would actually be more expensive than the one Carney proposed.
In terms of actual spending, there are three buckets that collect the majority of new funds in Carney’s plan — defence, infrastructure and housing.
For accounting purposes, Carney plans $18 billion over four years for defence (on a cash basis, the Liberals say an additional $32 billion would be spent). A number of infrastructure initiatives — aimed at “nation-building” projects, trade corridors, digital infrastructure, health-care infrastructure, community infrastructure and projects in the Arctic — account for more than $20 billion.
Build Canada Homes, a new agency focused on affordable housing, would receive $11.8 billion over four years. Another $6 billion would go toward helping municipalities reduce development charges and build housing-related infrastructure. A new tax incentive for the construction of rental housing would cost $4.1 billion.
The additional spending would be partially offset by cost reductions. The Liberals say that transfers to provinces and individuals would be off limits, but they aim to save $28 billion over three years by cutting “wasteful” spending and making changes to the government’s internal operations, including a cap on the size of the public service.
Finding that amount of savings probably won’t be perfectly easy or painless — a previously announced spending review was already expected to “refocus” $15 billion over the same time frame. (On the other hand, the Business Council of Canada has suggested that a spending review on par with the austerity of the mid-1990s would find cuts of $90 billion over three years.)
Liberal Leader Mark Carney unveiled his costed platform in Whitby, Ont., on Saturday. It included a pledge to increase existing defence spending by $18 billion by 2030. Carney told reporters ‘it is possible, we’ll need to do more.’
But Carney’s argument is that Canadians can trust him to prudently manage public funds.
“It’s a question of management and focus, and one of the things that I bring is experience in managing and focus on budgets,” he said on Saturday.
The Liberals emphasize that they would reduce the government’s operational spending, while new spending would predominantly go toward capital — tangible assets and things that grow the capacity of the Canadian economy. But at the bottom line, the Liberal platform would mean higher deficits over the next four years.
Instead of a projected deficit of $46.8 billion (equivalent to 1.47 per cent of GDP) in 2025-26, the deficit would be $62.3 billion (1.96 per cent of GDP). Four years from now, the deficit would be $47.8 billion (1.35 per cent of GDP). By the fourth year, the Liberals hope the deficit would be composed entirely of capital spending.
For the sake of comparison, at the height of its response to the Great Recession, Stephen Harper’s Conservative government ran an annual deficit equivalent to 3.6 per cent of GDP in 2009-10. The following year, the deficit was 2.1 per cent of GDP.
Is this the right plan for the moment?
Deficit hawks will groan at Carney’s forecast, but ultimately, the question is whether the global circumstances and the specifics of Carney’s plan justify the additional debt or whether the federal government’s fiscal situation should compel much tighter spending.
The federal government’s debt-to-GDP ratio was 42.1 per cent in the last fiscal year. That’s 11 points higher than it was before the pandemic, but still 24 points lower than it was in the mid-’90s. As a share of the economy, federal debt has returned to where it was in 2002.
Carney’s argument is that his plan meets the moment — that it’s what the federal government should be doing in the face of the crises that exist.
“I know that when you’re in a crisis, you have to act with purpose and with force. Your government needs to step in,” he said. (It was one of more than a dozen times he used the word “crisis.”)
In a high-stakes showdown for both, Liberal Leader Mark Carney and Conservative Leader Pierre Poilievre went head-to-head for the last time before the federal election.
Beneath the most expensive items, there are smaller items in the platform that speak to Carney’s larger argument, including a full foreign-policy review (with the stated goal of expanding Canada’s foreign service) and $100 million over four years to attract academics and researchers currently working in the United States.
Furthermore, Carney argued, Poilievre doesn’t understand or appreciate the situation Canada and the world are now in. Carney chided the Conservative leader for saying the president should “knock it off.”
“As if it were so simple,” Carney said.
Poilievre obviously disagrees with the choices Carney would make. But the full extent of Poilievre’s own choices remains unclear — with just a week remaining in the election campaign, the Conservative Party has yet to release a complete and costed platform.
