Deficits & Debt
Debt is money owed, and deficit is net money taken in (if negative). Debt and deficit are two of the most common terms in all of macro-finance, and they're also among the most politically relevant, inspiring legislation and executive decisions that affect the entire country.
Canada has the second largest gross government debt of ‘AAA’ rated countries after the United States, which is ‘incompatible’ with its gold-plated rating, according to the ratings agency.
With this year’s federal budget, Prime Minister Justin Trudeau firmly established his fiscal legacy. No Canadian prime minister has spent more money (per person, inflation-adjusted) or accumulated more debt (per person), outside a world war or recession, than Prime Minister Trudeau, noted the Fraser Institute.
The federal budget 2019 predicted a deficit of $19.8 billion for 2019-20, including Ottawa’s $3-billion risk adjustment, compared with the $19.6-billion deficit predicted in the government’s fall economic update despite billions in new income tax and excise tax revenue.
- $22.8 billion in new spending over six fiscal years.
- 2018-19 deficit projection: $14.9 billion, down slightly from the fall.
- 2019-20 deficit projection: $19.8 billion, with $3 billion risk adjustment.
- Debt: $685.6 billion, projected to rise to $761.7B by 2023-24.
- Debt-to-GDP ratio: Projected to be 30.8 per cent, falling to 28.6 per cent by 2023-24.
This recent and sudden accumulation of debt is due to the rapid increase in program spending that immediately followed the fall 2015 federal election. The Trudeau government has steadily ramped up program spending, by 25 per cent over four years, reaching $323.5 billion for the year ended March 2019.
No specific proposals yet.
No specific proposals yet, however the Conservative campaign has and will continue to remind Canadians that Trudeau promised not to exceed $10 Billion in annual deficit in any one year of his term, and to present a balanced Budget in 2019-2020. Instead there is a projected $19.8 B deficit, hence the accusations of broken promises.
The NDP says it will manage debt and deficits responsibly, borrowing when required to defend the services that Canadians and their families rely on, and moving to balance when prudent.
No specific proposals yet.
No specific proposals yet.
No specific proposals yet.
On Tuesday, Andrew Scheer pledged to repeal tax changes for small business investments brought forward by Finance Minister Bill Morneau in 2018. It includes a pledge to restore access to the small business tax rate for businesses with a passive annual income of more than $50,000, as well as allow such firms access to refundable taxes for corporations on the distribution of eligible dividends.
As well, Scheer wants to exempt spouses or common law partners of small business owners from Liberal changes restricting the savings from income sprinkling, a strategy used by wealthy owners of private corporations to divert their income to family members with lower personal tax rates. Small business tax changes were first proposed by Morneau in the summer of 2017 and then tweaked in 2018 following a strong outcry from certain business owners, including family doctors operating their own practice.
The Tory leader is also pledging to reduce federal regulations by 25 per cent. While Scheer did not offer specific examples as to what red tape can be cut, he committed to eliminate outdated regulations he described on Tuesday as “low-hanging fruit.”
The Montreal Economic Institute, a think tank promoting liberal economics, estimated last year that there were 136,121 federal regulations, meaning a Scheer government would have to cut more than 34,000 measures.
Scheer is also vowing to appointing a minister to lead red tape-cutting efforts, as well as removing two regulations for every one adopted — echoing a commitment in Ontario by Premier Doug Ford.
Kevin Milligan, an economist at the University of British Columbia, said rolling back the Liberal government’s changes would benefit some of Canada’s wealthiest. In a Twitter thread, he said the passive investment proposal would affect the top 2.9 per cent of private companies, but would receive 88 per cent of such income.
“These proposals clearly benefit the highest earners who have private corporations,” Milligan said. Canada’s independent budget officer estimated repealing Liberal measures on passive income would cost more than $500 million annually, totalling $5.4 billion between 2020-21 and 2028-29.
Exempting spouses from taxes on income sprinkling would cost $334 million over nine years starting in 2020. A commission tapped to review tax competitiveness would cost $20 million.
Such efforts would ultimately widen the hole in federal revenues, although Scheer said Tuesday a fully costed platform will be released soon that shows a path towards balanced budgets in five years.
If elected, the Liberals will reduce the cost of federal incorporation, remove all fees for business advisory services from agencies like the Business Development Bank of Canada, and create a voluntary payroll system to automate records for small businesses.
A Liberal government would also launch a pilot project that would provide as much as $50,000 for up to 2,000 entrepreneurs to help them start a business.
Trudeau says a Liberal government would give $250 to every new business to help them develop a website or e-commerce platform.
The Liberals estimate the measures would cost the federal treasury $129 million next year, a number that would rise to $163 million in 2023-24.
Liberal Leader Justin Trudeau says a Liberal government would eliminate the so-called "swipe fee" on sales taxes that merchants must pay to credit-card companies on every transaction.
Scheer promises public transit tax credit as part of climate change plan. The Liberal government cut the tax credit in the 2017 budget, saying it was ineffective and they would rather spend the money on building transit. The Conservatives say their measure, which they are calling the Green Public Transit Tax Credit, would give people a 15-per-cent credit at tax time. Costing would be an estimated $229 million a year.
With Alberta’s governing Conservatives campaigning against Liberal candidates in the lead up to a national general election this fall, records show federal funding for a range of economic and social programs in the province has mushroomed under the Trudeau government.
A database of federal financial transfers going back to 2013 shows that Alberta’s share of funding on social and scientific research, universities, economic development, Indigenous and First Nation support and other areas increased by 34 per cent from 2014-2015 to 2017-2018.
Only the province of Quebec received a larger increase in its share of the federal funding, up by nearly 37 per cent from the governmental fiscal year 2014-2015, the last full fiscal year of the previous Conservative government, to 2017-2018, the latest fiscal year available of federal spending records under the Liberals.
The financial contributions of $100,000 or over include spending under agreements on health and social spending such as post-secondary education, but also programs where the federal government has discretion, such as spending on Indigenous, First Nation, Inuit and Metis support and science and environmental initiatives in collaboration with provinces. Universities are among the most-funded institutions each year.
Alberta’s federal transfer payments climbed from $7.4 billion in the fiscal year 2014-2015 to $9.9 billion in 2017-2018, with nearly all sectors receiving significantly higher funding than under the previous Conservative government.
The largest increases in federal spending in Alberta over that period went to health, social programs, family support and development for First Nation, Inuit and Indigenous communities – to $2 billion in 2017-2018 from $1 billion spent on those programs in 2014-2015.
That spending also included funding for self-government initiatives, negotiation and eventual implementation. The funding came from Health Canada and Indian Affairs and Northern Development under the Conservatives and from Health Canada, Indian and Northern Affairs and Indigenous Services under the Liberals.
Indigenous and First Nations, along with Inuit and Metis received scattered funding through other programs as well.
With only three Liberal MPs in the province, the federal government nonetheless devoted more on economic development in Alberta in 2017-2018 than the previous Conservative government did in 2014-2015 – $47.8 million spent on Western Economic Diversification projects compared to $33.9 million under the Conservatives two years earlier.