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Sean Speer: Why won’t the Liberals own their big-spending record?

Commentary

One of the oddest traits of the Trudeau government is that even after seven and a half years in office, it still cannot decide whether to boast about its fiscal profligacy or downplay it. On one hand, its extraordinary willingness to “invest” public dollars in different causes and projects is clearly core to its political identity. On the other hand, it seems self-conscious about the true costs of its progressive predisposition to public spending. 

This inherent tension is not new for the government. It goes back to its origins. The Trudeau government was first elected with a plan for deficit spending that it went some lengths to emphasize was “modest”, “prudent” and “short-term.” Even as mounting evidence contradicted these claims (as former Prime Minister Stephen Harper famously predicted), it seemed reluctant to fully embrace its own fiscal policy choices. The government and its supporters clung for some time to claims about the federal debt-to-GDP ratio and other fiscal anchors before eventually abandoning them altogether. 

Today they’re still stuck between two competing ideas: the government rhetorically rejects the so-called “austerity” of the Conservatives but it also counterintuitively argues that its fiscal policy broadly conforms to its predecessor’s. 

That leaves it to us to try to reconcile these incongruous interpretations of the Trudeau government’s fiscal policy. Let me therefore defend the government from its progressive critics and its own preposterous spin about “fiscal restraint” as Finance Minister Chrystia Freeland put it in her 2023 budget speech. 

There’s nothing restrained about the government’s fiscal policy unless the word has assumed such an elastic definition as to render it essentially useless as a description of government budgeting. Notwithstanding the claims of its critics and defenders, the Trudeau government is easily the biggest-spending government in modern Canadian history. 

The COVID-pandemic obviously complicates an analysis of the government’s fiscal record. The unprecedented spike in federal spending—it increased by nearly 80 percent between 2019-20 and 2020-21—needs to be accounted for. Yet even if one opposed the magnitude of overall pandemic spending or specific spending choices, it’s fair to say that any government would have increased program spending and run budgetary deficits of some size in response to the pandemic. 

Fiscal figures beyond 2020-21 are also still only projections that the government may overshoot. It has a long track record of pushing up spending and the size of the deficit as the budget’s outer-year projections become closer to the present. The 2023 budget for instance revised the government’s previous projection that it would be back in surplus in 2027-28. The Parliamentary Budget Office’s analysis now suggests that it may happen by 2035. The point here is that there’s good reason to assume that current spending projections for 2023-24 and beyond are bound to be adjusted upward in the coming years.     

Notwithstanding these limitations, we can still look backwards and forwards to evaluate the Trudeau government’s fiscal policy and the tension that’s run through how it has spoken about spending, deficits, and debt.  

Let’s start with program spending prior to the pandemic. It grew by an average of 6.2 percent per year over the Trudeau government’s first four years in office. This stands in contrast with the Harper government’s last four years which actually saw program spending decline by an annual average of 0.9 percent (see Figure 1). 

Graphic credit: Janice Nelson.

Then there’s the pandemic response which drove up federal spending to unprecedented levels. Just consider: the 2020-21 deficit itself was more than 10 percent larger than the entire federal budget in the last year of the Harper government. Another way to think about it is: its predecessor could have collected no revenues in its final year in office and still ran a smaller deficit than the one recorded in 2020-21. 

Emergency spending as a share of GDP reached 18.5 percent that year which though it matched the G-7 average (see Figure 2) was among the highest in the world including peer jurisdictions such as Australia, New Zealand, and the United Kingdom. 

Graphic credit: Janice Nelson.

The government’s post-pandemic projections envision program spending falling relative to a pandemic-induced high but it’s notable that it doesn’t fully revert to its pre-pandemic trajectory. After a nearly 80-percent increase in 2020-21, the government projects a roughly 25-percent reduction over the next two years before it resumes growing again. A considerable share of the pandemic spending has simply become part of the government’s ongoing expenditure baseline. 

As I’ve outlined in a past Hub article, if the pandemic had never happened and the government simply kept growing spending at roughly 6 percent per year as it had prior to the pandemic, program spending in the current fiscal year would be as much as $45 billion lower than is currently projected (see Figure 3). Such back-of-the-envelope analysis provides a sense of how much the pandemic spike has altered the course of the government’s own pre-pandemic trajectory. 

Graphic credit: Janice Nelson.

As mentioned earlier, there’s good reason to be skeptical about the post-2023-24 projections. They anticipate a level of spending restraint that the government has never delivered. They’ve also already changed a great deal in the past 16 months alone.

Consider for instance that between the 2022 Budget, the 2022 Fall Economic Statement, and the 2023 Budget, projected program spending in 2024-25 alone has gone up by nearly $25 billion (see Table 1). Another way to put it is: between the past two budgets alone, the government’s own projection for program spending in 2026-27 was pushed up three years to 2024-25. Even if one is prepared to grant the government some dispensation due to pandemic uncertainty, it’s difficult to defend such significant movement—particularly in the later years—over such a short period. 

Sources: Graphic credit: Janice Nelson.

These figures suggest that, as these outer years get closer, it’s more likely than not that the government’s own spending projections will grow. The interplay between outstanding policy priorities, political exigencies, and ideological preferences undoubtedly points in the direction of higher spending and more deficits and debt in the coming years. 

The Trudeau government’s spendthrift assumptions were evident at its beginning and they remain evident today. At this point, the only ones unable to see it are those blinded by some combination of ideology or partisanship. The government might as well accept it. The rest of us have. 

Amanda Lang: How behavioural science could seriously improve government performance

Commentary

The following is the latest installment of The Hub’s new series The Business of Government, hosted by award-winning journalist and best-selling author Amanda Lang about how government works and, more importantly, why it sometimes doesn’t work. In this five-part series, Lang conducts in-depth interviews with experts and former policymakers and puts it all in perspective for the average Canadian. Listen to the accompanying interview with Michael Hallsworth, the managing director of the BIT Americas, on your favourite podcast app or at The Hub.

Remember nudge policies?

Popularized in the 2000s, nudging was out of the behavioural science toolbox. The idea was that governments could help shape the choices and behaviour of citizens with subtle or even unconscious signals.

They could harness some of our human tendencies to get the results they want, like increasing organ donation by forcing us to opt out rather than opt in. Marketers now make use of behavioural psychology all the time, like driving up sales of the double patty hamburger by offering a triple patty because, suddenly, the double looks like a prudent choice.

A couple of decades later, governments still use those kinds of tactics, but as behavioural insights mature, they are also using them to understand their own internal systems and processes.

Michael Hallsworth is one of the world’s experts on applied behavioural science as managing director of Behavioural Insights Team, a UK-based group with a mission to improve policy and public services. He has advised governments and policymakers globally and sees the field in an era of new sophistication and maturity.

“We have made the case for behavioral science, people have shown it can make a difference. And now it’s a question of how much difference, what’s the right option, in which circumstance?” he says.

Rather than a tool for manipulation, Hallsworth says behavioural science used properly can empower us. “If people are aware of what produces a certain behavior, they can kind of invest in that,” he says.

For instance, changing your environment slightly, and removing temptation, can be much more effective than trying to use willpower to achieve a goal. “I’m not disempowering you by telling you that, in fact, I’m helping you do something more effective by telling you we overestimate our ability to use willpower when we are confronted with options,” he says.

It only makes sense then that large organizations like governments would use similar tools to improve their own operations. “I think there’s a massive, underappreciated opportunity here to improve the way government works itself,” Hallsworth says.

In his work in “behavioural government” he applied the understanding that systems inside a government, run as they are by people, use the same mental shortcuts, with the same strengths and failings, as the rest of us.

“Governments are overly optimistic. In terms of their plans, large projects tend to go over budget,” he offers as one example. Groupthink is another weakness, with a tendency to reinforce views that can lead to more extreme thinking. “There are ways you can build institutions differently and change the way they work to make these kinds of, if you like, biases less likely to happen. It requires an institutional approach.”

To counteract some of those weaknesses, it’s possible to build in what Hallsworth calls “break points” to stop and reassess assumptions. One way to do that is what is called a premortem, so that instead of waiting for something to go wrong and assess why, you give people license to voice all their doubts about a plan or course of action and work out what could go wrong in advance.

Behavioural Insights has spent quite a bit of time working with partners in the What Works Cities program to develop feedback mechanisms for city governments aimed at improving how they function with real data, and backed by science. It’s the kind of rigor Hallsworth thinks governments need to bring to their operations more broadly. “I don’t see this as a kind of nice to have, I think it can be really kind of central to the way governments work. Because most policy, most service provision is intended to have some kind of behavioral effects.”

There is another reason government needs to understand behavioural science and the ways it can be used—for good and ill. Private sector firms are also making use of it, including technology companies with access to vast pools of user data. Throw in artificial intelligence, and targeted interventions become extremely effective. “There is a prior question about the bounds of acceptability,” Hallsworth notes. “What do people want? How do you prevent it being creepy, how do you prevent it being inappropriate?”

One area where this kind of thinking can be helpful is a political one, namely the apparent polarization of people’s views. The power of groupthink is real, Hallsworth says, pointing to experiments where a simple math question is answered differently based on participants’ political preconceptions.

But the solution rooted in science to that kind of closed-mindedness is refreshingly simple: “Sometimes just asking people to explain how they think something works, can lead people to pause and reconsider.” It turns out that most of us suffer from something called “the illusion of explanatory depth,” which is when we think we know how things function, but when pressed, don’t. That simple thought exercise leads us to a more open mental state.

The key for Hallsworth is to understand that applying behavioural science isn’t about preying on our human neurological frailties, but about understanding our strengths, which can be rapid and unconscious, and directed well can help us navigate our lives better.

Hallsworth seems eager to see behavioural science applied more often to policy issues and their implications. “I think a lot of the time we’ve focused on changing specific aspects of how things are done. We can show that they had an impact.”

But understanding that those policy issues are the products of large complex systems is important —and using behavioural science as a lens to see through, rather than a tool to nudge with, is the next evolution for organizations like government.

That would allow policymakers to better assess how things are playing out—and perhaps as important, when something isn’t working as intended. “I think that’s the way forward, which I really would encourage governments to embrace.”