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Sean Speer: Be wary of the government’s sudden conversion to fiscal restraint

Commentary

One of the key narratives out of yesterday’s budget is that the Trudeau government has found fiscal religion. The budget was described as “modest”, “prudent”, and “restrained” by some key voices in the parliamentary press gallery. Finance Minister Chrystia Freeland even spoke of the country’s “proud tradition of fiscal responsibility” in her budget speech.“Canada has a proud tradition of fiscal responsibility. It is my duty to maintain it—and I will.” https://www.canada.ca/en/department-finance/news/2022/04/budget-2022-address-by-the-deputy-prime-minister-and-minister-of-finance.html This is a big change from previous budgets and expectations heading into yesterday’s release.

Yet the numbers in some measure support this idea. As federal program spending normalizes in the aftermath of the pandemic, year-over-year growth is somewhat limited. The budget projects average annual spending growth of just 2.2 percent between 2023-24 and 2026-27. If the government were to abide by these spending levels, it would represent a sustained period of relative restraint in Ottawa.

There are three reasons, however, to be doubtful of this sudden conversion on the part of the Trudeau government. One is the government’s past record, another is the permanency of its so-called “temporary” pandemic spending, and the final one is its yet-to-be-implemented, yet highly-costly spending promises.

What’s past is prologue?

The government’s pre-pandemic fiscal policy is the best indicator of its policy preferences in relatively normal circumstances, as well as a majority government. It may therefore be the clearest and most unconstrained expression of what fundamentally makes the prime minister and his inner circle tick when it comes to the magnitude and scope of government spending.

During its first five years in office, the Trudeau government increased program spending by an average of 6.4 percent per year. The result is it rose from $248.7 billion in 2014-15 (which was the last full year of the Harper government) to $338.5 billion in 2019-20.

Had spending growth matched the government’s current rate of 2.2 percent annually over this same period, program spending would have reached $277.2 billion in 2019-20, or $61.2 billion lower than it actually was.

And that’s just a single fiscal year. Over the full five-year period, the cumulative difference would have been $165.4 billion which is significantly more than the $94.1 billion in accumulated deficits over the same period.

In other words, if the Trudeau government would have had its purported fiscal conversion several years earlier, the federal government would have not only entered the pandemic in a budgetary surplus, but it also would have accumulated far less debt along the way.

Nothing more permanent than temporary spending

The second proof-point against Ottawa’s newfound fiscal probity is the permanency of its pandemic spending. This is important because it reflects the government’s willingness to set parameters on the key distinction between short- and long-term spending.

Remember that pre-pandemic program spending peaked at $338.5 billion in 2019-20. Then of course the pandemic hit and the federal budget spiked to unprecedented levels due in large part to a massive, immediate-term increase in government spending.

Program spending hit $608.5 billion in 2020-21—a near 100-percent year-over-year increase. Yet the idea was that most of this spending was supposed to be temporary. It would help to sustain businesses and households in the face of government-imposed restrictions on economic activity and then withdraw as those public health mandates were lifted.

Yesterday’s budget, however, tells a different story. While spending increased by a whopping 99.8 percent in 2020-21, it’s only projected to fall by 22.3 percent in 2021-22 and 10.1 percent in 2022-23 before it resumes rising in 2023-24.

The key point here is that federal program spending will henceforth remain elevated relative to its normal trajectory. Just consider, for instance, that if instead of the massive pandemic-induced spike, the government had simply maintained its pre-pandemic spending growth of 6.4 percent per year, program spending in 2022-23 would have been $407.4 billion rather than $425.4 billion as projected in the budget.

The upshot is that even if the government had maintained its own, highly-elevated pre-pandemic spending levels, baseline program spending ought to fall far below where the government now projects. The $18-billion gap between pre- and post-pandemic spending in 2022-23, for instance, represents more than a 2-percentage point increase in the GST.

Temporary pandemic spending, in other words, has now become permanent. This isn’t a sign of fiscal prudence. It’s a level step to a new, permanent spending baseline.

What comes next?

The final case against the prevailing narrative is what isn’t in this year’s budget but is bound to come in future budgets.

Remember the government recently signed a parliamentary agreement with the New Democratic Party that outlined several high-spending commitments including pharmacareThe agreement promises “continuing progress towards a universal national pharmacare program by passing a Canada Pharmacare Act by the end of 2023.” and long-term careThe agreement promises “a Safe Long-Term Care Act to ensure that seniors are guaranteed the care they deserve” although there is no deadline. that weren’t reflected in the budget.

It’s hard to know when and how these promises will manifest themselves but it seems odd to assert that the Trudeau government will oversee a sustained period of fiscal restraint with such massive new, entitlement spending waiting to be enacted. They hang like the sword of Damocles over the government’s fiscal projections.

Pharmacare alone, according to the Parliamentary Budget office, would cost as much as $25 billion per year.“Of the $28.5 billion in estimated pharmaceutical expenses in 2015-16, $24.6 billion would be eligible for a national Pharmacare program. These are costs currently incurred by governments ($11.9 billion), private insurance plans ($9.0 billion), and patients ($3.6 billion).” https://www.pbo-dpb.gc.ca/en/blog/news/Pharmacare Federal spending on long-term care could similarly be significant.

Just because these highly-costly promises weren’t reflected in this year’s budget isn’t a sign that the government has abandoned them altogether. The Liberal-NDP parliamentary agreement extends to 2025 and so it’s reasonable to assume that we see new spending in these areas in future budgets.

That is to say although the budget’s projections for program spending growth don’t account for these yet-to-be-implemented items, they still represent upward pressure on the government’s own spending plans. There’s a high probability therefore that a bet in favour of more and higher spending between now and 2025 pays out.

One final observation: the budget indicates that the independent economic projections that underpin the federal government’s own fiscal estimates were collected from private sector economists in early February. This signals to me that the government’s plan was probably to release the budget in March, but it was postponed until April—perhaps due to the economic and fiscal uncertainty caused by Russia’s invasion of Ukraine.

To the extent that this interpretation is true, it seems possible—even probable—that, as part of this reassessment about budget timing, the government opted to put big-ticket items such as pharmacare and long-term care in abeyance until the short-term uncertainty has subsided somewhat and we get closer to the 2025 election.

If this hunch is right, the key takeaway is that the narrative about the Trudeau government’s fiscal conversion is wrong. Just because the budget may not have been an immediate expression of its big-government thinking doesn’t mean it has seen the light on the road to Damascus.

Mark Johnson: Canada has too many MPs

Commentary

The Conservative leadership race is still in its early days. Battle lines are being drawn. Forces are being marshalled. General themes are being developed. Dinnertime robocalls have started. (Lucky me.) And we’ve heard some early gunfire. All standard stuff. But the race needs more than just the same old debates between the same old wings of the party. And so far, the race is quickly becoming nothing but a party referendum on the carbon tax.

Those debates are both needed and important but it’s time for some bold new ideas to bring to Canada. Here’s one that’s overdue for serious debate. Reduce the number of MPs.

You read that right. Yes, it’s coming from someone who wanted to be an MP. Does Canada really need 338 MPs?“Each member of Parliament is elected to represent a constituency in the House. There are currently 338 members in office in the 44th Parliament.” https://www.ourcommons.ca/members/en And that number is set to go to 342.“Put forward in October 2021 as the years-long process kicked off, the independent elections agency calculated that to account for Canada’s population changes, the House of Commons’ seat count would in the coming years be increasing from 338 to 342. To adjust for this, new ridings will be added, requiring the redrawing of current electoral district boundaries.” https://www.ctvnews.ca/politics/feds-look-to-amend-constitution-act-to-impose-new-minimum-seat-count-for-each-province-1.5833425 That’s one MP for every 112,000 of us. The U.S. has one Congressional representative for every 760,000 people thereabouts. We have so many MPs now that they barely fit into the House of Commons.

Raising this may get me into trouble with my political friends but it needs to be said. Let’s have a serious debate about whether Canada needs all these MPs. Don’t get me wrong. I’m not knocking the MPs themselves. They’re hardworking folks. I’m pro-politician. I tried hard to become one. Yet in the grand scheme of things, does Canada need that many MPs? Can we be just as well governed with fewer? We can.

If Conservatives are sincere about reducing the size of government, then let’s start at the top with the number of politicians.

What’s the connection between the size of our legislature and the quality of a national policy or a decision that’s national in scope? Does Canada today with 38 million people need more MPs formulating defence or economic policy than the Canada of 32 million? Would our Covid response have been worse if we had forty fewer politicians in Ottawa? Was it better because we had forty more?

More MPs means more salaries at $189,000 per head, plus more staffers, other costs, more people to mess around in things, and more projects to justify their existence.Indemnities, Salaries and Allowances The Devil makes work for idle hands. Idle MPs make for bigger government.

Some will argue that more populous ridings will only lead to politically underserviced citizens. Companies regularly downsize their workforces but achieve the same outputs. So why not the House of Commons. Ontario significantly cut its number of legislators in the late nineties. It can be done.

What’s a good number? That would be up for debate. Downsizing the House to 295 or 300 seats from 338 would return it to the size it was between 1988 and 2000, roughly speaking.

Here’s the sticky wicket. If we reduce the number, then it must only happen if we fairly allocate the remaining MPs across the provinces based on their relative populations. There’s not enough space here to describe the formula for allocating MPs to each province. It’s convoluted, outdated, and leads to enormous provincial disparities.

In the 2021 election, I ran in the suburban Toronto riding of Scarborough-Agincourt. Its population is 105,000. The PEI riding of Malpeque has 36,000. According to Elections Canada, Ontario had one MP per 122,000 people on average. PEI had one MP per 41,000. Therefore, Islanders have three times the political power of Ontarians. Put another way, Canadians who live in Malpeque had three votes per person while those in my riding had one. I’ve got nothing against the good people of PEI but that’s manifestly unfair.

The equality of Canadians is violated. People’s voices aren’t heard. Regional grievances are fueled. Politics becomes distorted. Negative outcomes are more likely.

Let’s be honest. A reallocation of MPs based on the principle of political equality will lead to Atlantic Canada, Manitoba, and Saskatchewan having less clout than they have right now. But they won’t be getting any less than anyone else.

This will be a thorny debate, perhaps even an unpleasant one. Let’s not be afraid. Modernizing the formula requires a constitutional amendment.“An amendment that only ‘applies to one or more, but not all, provinces’ requires approval from the Canadian parliament and the governments of any affected provinces. An amendment that affects all provinces, by contrast, requires the approval of at least seven of the provincial governments representing at least 50 per cent of the Canadian population (sometimes called the 7-50 formula). On a handful of really important matters, such as changing the amending formula itself, unanimous provincial consent is necessary. The very high bar for passing substantial amendments is probably the main reason Canada’s Constitution has not been significantly modified since 1982, though there have been a few minor amendments passed, usually only involving one province (see sidebar). These are known as Constitution Amendment Proclamations.” https://thecanadaguide.com/government/the-constitution/

It risks dredging up regional tensions, old grudges, and provincial demands. Managing it to ensure a positive outcome will require leadership, compromise, discipline, and forbearance on the part of our leaders. It also requires hard boundaries to be placed on the scope. Just because we’re debating the number of MPs doesn’t mean we’ll re-open Senate reform or the distinct society clause.

Maybe it’ll be political suicide. Maybe, just maybe, it will succeed and Canada will be better for it.

Canada needs fewer, better politicians. We’re not better governed today because we have forty more MPs than we did twenty-five years ago. The ever-increasing number of MPs is not written in stone. It’s written in our law. We can change it. It’s past time we did so.