In The Weekly Wrap, Sean Speer, our editor-at-large, analyses for Hub subscribers the big stories shaping politics, policy, and the economy in the week that was.
Once again, the Carney government is stuck with Trudeau’s bill
A big yet underdiscussed part of the Carney government’s budget is its Comprehensive Expenditure Review, which is projected to achieve $13 billion in annualized savings by 2029-30.
The largest single source is adjustments to the indexing of the pensions for retired public servants. It’s projected to net $5.8 billion over four years or an average of about $1.45 billion per year. These fiscal savings only offset a small fraction of the government’s increased spending and therefore will have minimal effect on deficits or debt in the coming years.
The whole exercise reinforces the costs of the Trudeau government’s regrettable decision to reverse the Harper government’s raising of the Old Age Security (OAS) eligibility age from 65 to 67. The real budgetary consequences are arriving now and will compound through the decade.
Readers will recall that the 2012 reforms would have phased in gradually, starting April 1, 2023, and reaching their full effect by January 2029. The Office of the Superintendent of Financial Institutions later estimated that these changes would have saved just over $11 billion annually as of 2030.
Given the phase-in period, it’s reasonable to assume that they would have generated roughly $5-6 billion this year. That would represent nearly half of the Carney government’s own savings target and exceed its largest savings measure by far. One cannot help but think that Prime Minister Carney wishes that he could claim those savings now in light of the fiscal serious pressures that his government is facing.
The uncomfortable truth is that the Trudeau government’s short-term political calculus a decade ago has become a long-term structural problem for today’s policymakers. Ottawa now finds itself scouring departmental budgets for small savings while a single policy reversal continues to add billions in permanent and compounding costs every year.
The budget reinforces a deeper lesson about fiscal policy: prudence delayed is prudence denied. It’s far easier to score political points by undoing tough policy decisions than it is to make them. The Harper government tried to get ahead of the fiscal costs of an aging population. The Trudeau government reversed it. And now, the Carney government is stuck with the bill.
Trudeau’s immigration policies were unsustainable—but can Carney find an alternative?
One of the underappreciated developments in the Carney government’s first budget is the recalibration of Canada’s immigration targets. Although there have been criticisms—some have observed, for instance, that actual immigration numbers will likely exceed the headline targets—the broader direction remains clear. The new targets should bring immigration levels broadly closer to those of the Harper years than the Trudeau years.
That’s a significant economic development. Immigration has been a key driver of Canada’s GDP growth in recent years, which, as we’ve documented at The Hub, has masked the deeper problem of stagnant productivity and declining output per person. Had immigration levels remained closer to their historic norm, it’s quite possible that the Canadian economy would have been in or near recession.
The Trudeau government’s immigration policy was, in effect, an exercise in demand management. By flooding the economy with new consumers, workers, and renters, it could generate headline growth even as productivity faltered and investment stagnated. The costs—on housing, infrastructure, and social cohesion—were left for future governments to address.
Is Trudeau's reversal of OAS age changes a long-term fiscal burden for Carney?
How does Carney's immigration recalibration differ from Trudeau's approach?
What is the conservative critique of the Supreme Court's Senneville decision?
Comments (5)
Trudeau is responsible for 10 years of declines, carney will be responsible for the next 10 years of more steady declines. His budget is worse than the last 3 … Canadian voters were duped.
We are well past the point where additional debt will fix what ails our economy.
Carney’s refusal to move past his green zealotry is what’s responsible for this apalling budget. Removing hurdles is what is required, not more debt.