It has been 868 days since the Chinese government arbitrarily detained Canadian citizens Michael Kovrig and Michael Spavor, having kept them in custody since December 2018. It has been 39 days since they were submitted to a closed trial on dubious charges of espionage. 

It has been 482 days since China first reported to the World Health Organization the existence of a cluster of pneumonia cases in the city of Wuhan. A cluster that would rapidly spread and, aided by the Chinese government’s initial denials and coverups, go on to cause worldwide disruption. The COVID-19 pandemic has claimed over 3 million lives across the globe to date.

It has been 63 days since the Canadian parliament passed a non-binding motion recognizing that the Chinese government’s treatment of the Uighur Muslim population constitutes genocide.

It should be no surprise that Canadians increasingly believe the Chinese Communist Party government led by Xi Jingping has not been a responsible global citizen.

Seventy-five percent of Canadians are uneasy with the prospect of China becoming the next global superpower, according to a survey conducted by Public Square and Maru/Blue and provided exclusively to The Hub.

The Chinese government’s lack of respect for democracy is the largest factor driving this sentiment, with 77 percent of uneasy respondents citing this as the primary reason for their concern. A mere 16 percent of respondents attributed their uneasiness to fears over losing their jobs to manufacturing abroad, while 55 percent expressed some worry about Canada losing control over its supply chain.

Duane Bratt, a political science professor at Mount Royal University, said that while attitudes towards China have been worsening for a while, the COVID-19 crisis has exacerbated the situation.

“Relations were bad with China pre-COVID. And then they just escalated after COVID, where there’s a lot of blame that goes towards China. Not in a conspiratorial sense that they actually created it, but that they didn’t warn the rest of the world quick enough. That lack of transparency took a bad situation and it made it a lot worse,” said Bratt.

These negative sentiments towards China are not limited to Canada but broadly shared in other western democracies as well, said Yuan Zhu, a lecturer in politics at Pembroke College at the University of Oxford in the United Kingdom.

There are a host of reasons for this, he said.

“China’s handling of COVID has been one immediate factor, but by no means the only one. Concerns over its treatment of minorities, its increasingly aggressive foreign policy, the fate of Hong Kong, trade wars, and disquiet over Chinese influence in western countries have all contributed to this. Many of these concerns are not new, but they have certainly assumed a new salience in recent years, and are affecting western perception of China accordingly. Finally, there are Canada-specific factors, chiefly the fate of the two Michaels,” he said.

Additionally, 65 percent of uneasy respondents in the Public Square and Maru/Blue poll were worried about the Chinese government imposing its will on Canada, and 53 percent were concerned about the Chinese government spying on Canada and its citizens. 

Canadians are correct to be worried in this manner, said Charles Burton, senior fellow at the Macdonald-Laurier Institute’s Centre for Advancing Canada’s Interests Abroad and a former counsellor at the Canadian Embassy in Beijing.

“The Chinese government is hostile to Canada’s liberal democratic purposes, and to our alliances with like-minded middle powers. I think Canadians have a right to feel that China’s intentions towards Canada are self-serving and hostile to democratic norms of citizenship and freedom of expression,” said Burton.

If Canadians are broadly united in worry towards China, why has the Canadian government been so loath to act in accordance with public opinion?

Given the huge disparities in size and power between the countries, Canada is in a difficult position when responding to China’s coercion and malign activities. But Burton counsels that it is important to do so regardless. There are meaningful actions we can take, he said, such as declaring persona-non-grata any Chinese diplomats who engage in menace and harassment, cracking down on espionage operations in Canada, and retaliating against any form of coercion, whether that be tariffs or hostage diplomacy.

Both Zhu and Burton are optimistic, though. “Canada has limited leverage vis-a-vis China, although it is by no means powerless. But any concerted Canadian effort at balancing against China will have to be undertaken in collaboration with allies, both traditional and new,” said Zhu.

Burton is confident that China is not as monolithically powerful as it wants us to perceive, but he says it is imperative that Canada unites with like-minded countries to pose a common front. By banding together we would negate the power of China to take advantage of asymmetrical bilateral relationships, he said. And Canada does not need to be dependent upon China — it might not be easy, but we can wean ourselves off that market if we have the will to do so. 

“Canada’s in a strong position to defend itself from China because the dependence of our external trade on China is relatively small, it’s less than 4 percent of our total external commodity trade. And most of that trade is in agricultural commodities, and minerals, which have a world market. So if we retaliate against China’s flouting of the rules-based international order and China attempts to retaliate by limiting Canadian exports into China, with some period of disruption, Canada could seek markets for those exports elsewhere. So the cost to Canada would not be devastating,” said Burton.

Ultimately, whichever path Canada takes, either further appeasement or a harder line in conjunction with our allies, it must commit one way or the other, said Zhu. 

“There is a tendency in Canadian foreign policy of trying to be everything to everyone, charting a middle course between great power rivals; this posture is looking increasingly less tenable, both on moral and on practical grounds.”

By 2025, Canada’s federal debt may increase by roughly $716 billion — nearly double our pre-COVID level. And 2020 and 2021 alone account for over $520 billion of that.

With such staggering sums, it’s natural to wonder what this means for the future.

“Workers and families will have to pay the price,” warned NDP leader Jagmeet Singh.

The budget “provides no real fiscal anchor,” observed Conservative opposition leader Erin O’Toole.

Even the government appears concerned. “The government is committed to unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium-term,” reads Budget 2021.

But how, you ask?

There are some modest tax changes in the budget, from cigarette tax increases, to vaping products taxes, to taxes on luxury vehicles, boats, and airplanes. But these are modest. The government isn’t lowering spending either. In fact, with significant new commitments in many areas — including $30 billion for child care over the next five years — it is doing the opposite.

Instead, the government is hoping to boost economic growth.

“The best way to pay our debts is to grow our economy,” said Finance Minister Chrystia Freeland.

There’s truth in that, as I’ll illustrate below. But the effect operates very slowly and we will remain exposed to significant fiscal risks. More will need to be done.

Is Our Debt Sustainable?

Let’s get one thing out of the way up front: Canada’s federal debt is sustainable and is not (necessarily) a burden on future generations.

You might prefer more borrowing to fund expanded social programs. Or you might prefer less borrowing. That’s fair enough. But regardless of your personal preferences, our federal government can carry its growing level of debt at relatively low cost into the foreseeable future. After all, what matters more than the dollar value of new debt is how quickly debt is growing relative to our ability to pay. That means looking to the debt/GDP ratio.

Once we get to 2022 and beyond, when the COVID measures are unwound, Canada’s debt levels grow more slowly than our total incomes. And my own work suggests this may continue. Without going into details, I estimate the government’s debt/GDP returns to its pre-COVID level roughly by 2040 (under current policy, and without a recession in the meantime).

This projection also makes clear why debt is not “shouldered by our children.” There’s no change in current tax or expenditure policies beyond what was announced in Budget 2021, yet debt burdens gradually fall.

This is sustainable. And economic growth is a key factor.

Growing Out of Our Debt?

So let’s return to the minister’s focus on growth.

The government’s primary measure to boost the economy is expanding accessible child care. More accessible child care will increase female labour force participation and employment, thereby increasing overall incomes. There is an important debate over how best to provide effective child care and early learning opportunities. But if it can be achieved, the economic effects are potentially large.

To illustrate, roughly 83 percent of Canadian men outside Quebec between the ages of 20 to 44 were employed in 2019 while only 77 percent of women were. In Quebec, where child care is more accessible, 84 percent of men of that age are employed and 82 percent of women are. If the national gap between male and female employment rates mirrored Quebec’s, overall national employment could increase by nearly 225,000 jobs and the overall economy might grow by roughly 1.2 percent. That may sound modest, but 1.2 percent of Canada’s nearly $2.5 trillion economy is a rather large number — roughly $30 billion per year.

This is a crude back-of-the-envelope illustration, to be sure, but the 1.2 percent gain is identical to what the government estimates in its own budget. So let’s run with it. If it takes 20 years to achieve this boost (again, the government’s estimate) then growth might increase by 0.05 percentage points per year. This increased growth translates into higher government revenues and falling debt burdens.

Just for argument’s sake, let’s suppose the government can quadruple this effect through other programs (infrastructure, education and training, improving regulatory efficiency, trade liberalization, and so on). If growth rates increase by 0.2 percentage points per year, then we return to pre-COVID levels of debt three years earlier by 2037 instead of 2040.

So while boosting growth can help, it’s hard to move the needle quickly so it shouldn’t be the only tool we use.

Fiscal Risks

Bringing debt levels back down matters because we face real fiscal risks if we don’t.

If another recession or two hits, debt will rise. If an expansion continues unabated, debt will fall. We just don’t know which of the two will happen. It may be prudent to prepare for the worst.

Returning to pre-COVID debt levels over the span of, say, 10 years instead of 20 wouldn’t be easy. Increasing the GST by two to three percentage points would be required. Restraining federal spending growth could also help. Increasing the eligibility age for benefits like Old Age Security from 65 to 67, for example, has the equivalent effect on the budget by 2030 of roughly one point on the GST.

But perhaps more important than federal fiscal risks are the long-run risks facing our provinces. Those governments, after all, bear the full burden of rising health costs from an aging population. And most aren’t well prepared. I plot my projection for provincial debt/GDP levels below. The contrast with the federal government couldn’t be sharper.

How Canada moves forward to address long-term challenges remains an unanswered question. Budget 2021 did little. The government is right to highlight the benefit of boosting economic growth. And reasonable people can discuss the merits of specific programs announced in the budget. But we must not neglect our long-run fiscal challenges, which will only grow larger in time.