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Opinion: Carney government doubles down on failed Trudeau fiscal policy

Higher spending, bigger deficits and deeper debts aren't going to bring the better economic performance the Liberals want to achieve

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In an attempt to distance itself from the Trudeau government during last year’s federal election, Mark Carney’s campaign promised a “very different approach” to federal finances, one aimed at improving Canada’s economic performance. The experience of recent federal governments suggests such an approach should include spending restraint, balanced budgets and debt reduction. Unfortunately for Canadians, the Carney government is instead doubling down on the Trudeau government’s failed approach.

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Justin Trudeau’s legacy as prime minister includes historically poor fiscal management. His government recorded the highest spending levels on record, which resulted in nine consecutive deficits and the highest levels of debt accumulation on record, even after accounting for population changes and inflation.

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Moreover, compared with the Harper and Chrétien governments that immediately preceded it, the Trudeau government presided over weaker economic performance across a variety of measures, including growth in per-person GDP (a broad measure of living standards), private-sector job creation, and per-worker business investment (which is key to workers becoming more productive and earning higher incomes). In contrast, the Chrétien government cut spending, consistently balanced the budget and reduced government debt — none of which prevented it from recording the strongest economic performance of the three governments.

Recent history is clear: to deliver on its promise of a strong economy, the Carney government should reject Trudeau-style fiscal policies and instead emulate Chrétien’s approach. But, as noted in our new study published by the Fraser Institute, that’s not happening.

For example, according to the Carney government’s first budget, released in November, from the fiscal year just ending through 2029-30, it intends to spend $67.6 billion more than the Trudeau government planned for the same five-year period in its final fiscal update in December 2024. Combined with slower projected revenue growth, this higher planned spending will produce combined deficits of $321.7 billion over the five-year period — more than double the $154.5 billion the Trudeau government had planned.

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As a result of this extra borrowing, the Carney government projects total federal debt will reach $2.9 trillion by 2029-30 compared with “just” $2.6 trillion under the Trudeau plan. That will take total federal debt to 79.0 per cent of GDP by 2029-30 compared to 71.7 per cent under Trudeau’s plan.

In sum, the Carney government plans to spend more, run larger deficits, and accumulate more debt than even the Trudeau government had planned. And in the months since the budget, the government has only further doubled down. For example, it recently introduced a new “affordability” package centred around a five-year, 25 per cent increase in the quarterly federal GST payment for eligible Canadians, along with a one-time GST payment equal to 50 per cent of the normal payment. This poorly targeted package, which will send cash to many people who don’t need it, follows the same “affordability” strategy as the Trudeau government — borrowing more to compensate Canadians for price increases rather than freeing up markets so prices don’t go up in the first place. And it will cost an estimated $12.4 billion.

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After a decade of fiscal mismanagement and economic stagnation under the Trudeau government, the Carney government needs to change course if it wants different results. So far, however, it has followed the same failed plan — higher spending, more borrowing and more debt.

The government’s coming fiscal update would be a good place to start moving in a new direction based on the proven policies of the recent past.

Grady Munro is a senior analyst and Jake Fuss is director of fiscal studies at the Fraser Institute.

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