Juno News - October 15, 2021


New report warns of ‘new normal’ of government spending


Episode Stats

Length

12 minutes

Words per Minute

192.58829

Word Count

2,323

Sentence Count

110


Summary


Transcript

00:00:00.000 Welcome back to the Andrew Lawton Show.
00:00:08.380 We've talked a lot about what the new normal is going to look like,
00:00:11.560 life after COVID, how long it's going to be until we can get back,
00:00:14.860 all of those things that we had from the big things to the small things,
00:00:19.180 like, you know, for example,
00:00:20.220 knowing if you're allowed to shake someone's hand when you meet them.
00:00:23.100 But one thing that is going back to the old normal is government spending.
00:00:27.540 There has not been a reality check to government.
00:00:29.680 In fact, they may be more empowered to spend money after all the programs
00:00:33.680 that a lot of Canadians, I think, in fairness, were in need of last year.
00:00:37.940 New report from the Fraser Institute finds that in 2021,
00:00:41.860 we're still seeing monumental spending, vastly outpacing even recession years,
00:00:47.600 such as in 2008, 2009, and certainly beyond.
00:00:51.300 Jake Fuss is a senior economist with the Fraser Institute and joins me now.
00:00:55.520 Jake, good to have you back on the show. Thanks for coming on.
00:00:57.820 Thanks very much for having me on, Andrew.
00:00:59.680 So this report here, I think it's interesting because when you look at this,
00:01:03.860 everyone knows last year was going to be a bit of a write-off if you wanted fiscal austerity,
00:01:08.820 governments around the world spending hundreds of billions, trillions of dollars.
00:01:13.000 A lot of those programs have carried into 2021, though, it looks like.
00:01:17.680 Yeah, well, while COVID has certainly created difficulties for government finances across Canada,
00:01:23.160 what we're kind of seeing now is the new normal level of federal spending is really at unprecedented levels in Canadian history.
00:01:30.280 So what we actually see in 2021, for instance, we're expecting per-person spending to be over $13,000.
00:01:36.240 This would be significantly above what we saw during the 2009 recession and during the peaks of World War II.
00:01:43.420 It's also significantly above the levels that we saw before COVID in 2019,
00:01:47.400 which were already at record levels in Canadian history.
00:01:50.440 So it's certainly concerning to see that new normal is going to be actually above what we even had before COVID.
00:01:57.100 Is it fair to call 2021 normal or extrapolate normal from that,
00:02:02.520 given that we are, as you note, still in the midst of a lot of the hardship and heartache from the COVID era?
00:02:08.400 Yeah, it's a great question.
00:02:09.960 I mean, ultimately, you know, we still do have some COVID-related spending, some emergency spending that's going on in 2021.
00:02:16.460 But we actually do in our analysis, we also look at 2022, which is expected to be a little bit more normal than 2021.
00:02:23.780 And while per-person spending will actually decrease a little bit in 2022,
00:02:27.820 it'll still be, again, significantly above what we saw before COVID.
00:02:31.760 So we're expecting per-person spending at the federal level to be about 12% to 18% above what we saw in 2019,
00:02:37.620 which was the last year before the pandemic.
00:02:40.520 And again, 2019 was already at record levels in Canadian history.
00:02:44.500 So if we even just look at 2022,
00:02:47.060 I think that's probably a good barometer of where we're headed in the future as well.
00:02:51.360 Now, are we adjusting for inflation with these numbers?
00:02:54.480 Yeah, that's correct.
00:02:55.240 So all of our numbers are adjusted for inflation.
00:02:57.460 So $1 in the year 1870 is equivalent to $1 in the year 2021, for instance, to make it comparable.
00:03:04.680 So, I mean, with that being said, what's to account for such a significant jump,
00:03:09.100 even from the 08-09 recession?
00:03:11.380 Because, again, in a recession, people would, I think, fairly expect government to be spending a lot of money
00:03:17.180 and racking up deficits.
00:03:18.440 We can argue about whether that's the best fiscal policy,
00:03:20.840 but I think that's politically where the narrative has gone.
00:03:23.700 What's to account for, even in 2018-2019, pre-pandemic,
00:03:29.020 significantly more spending per person than in 08-09?
00:03:32.400 Yeah, it's a great question.
00:03:34.080 So really what we saw, you know, beginning in the 2009 recession
00:03:36.820 was a big spike in per person spending across Canada.
00:03:40.420 And then there was a slight decline following that recession for about five or six years.
00:03:45.140 And really we saw the spending starting to ramp up again in about 2015-2016
00:03:49.340 as the new government started to implement new programs, expand, you know, programs as well.
00:03:55.880 And really what we saw between about 2015 and 2018 or 2019 or so,
00:04:01.120 we really saw per person spending increase by about $1,000.
00:04:05.000 So on an individual basis, you know, the federal government was spending more than $1,000 per person
00:04:09.720 in addition to what they had already spent before that.
00:04:12.680 So we saw that start to climb up above about $9,300 a person.
00:04:17.440 So, you know, obviously this had to do with new programs,
00:04:20.060 but also expansions to old programs as well,
00:04:22.060 like the Canada Child Benefit and a number of other programs.
00:04:25.100 And now what we're seeing, you know, after COVID,
00:04:27.760 you know, talking about introducing new programs as well,
00:04:30.460 like national childcare, national pharmacare,
00:04:33.660 and a number of other programs as well
00:04:35.280 that are only going to compound these costs as well for Canadians.
00:04:38.180 I know you look at the spending specifically in terms of the cost
00:04:43.280 and not necessarily delving into the detail of the individual programs.
00:04:47.020 But as a taxpayer, I'd look at this number and say,
00:04:49.080 am I getting, you know, 15, 16, 17% more from the government?
00:04:53.160 Am I getting that much more for being a Canadian taxpayer?
00:04:56.200 And I think for a lot of people, the answer would be no.
00:04:59.000 Well, it's certainly, you know, a question for all Canadians to kind of answer too,
00:05:02.220 you know, looking at the tax rates that you pay relative to, you know,
00:05:05.320 kind of the bang for the buck that you get for all these various services,
00:05:08.200 and also understanding the different cost implications.
00:05:11.200 If we have, you know, deficits that we're running because of all this spending,
00:05:14.800 really what we're doing is implementing higher tax rates in the future
00:05:17.780 to pay for today's spending.
00:05:19.300 At the same time, we're going to face, you know,
00:05:20.980 debt interest costs at the same time in the future,
00:05:23.420 particularly when interest rates are rising.
00:05:25.680 So there are costs and trade-offs to every decision that they make in Ottawa.
00:05:29.260 So it's certainly something important for all Canadians to be informed of.
00:05:32.460 Now, I know you looked at election spending as well,
00:05:36.240 or specifically election promises, and that is going to, as I understand it,
00:05:40.560 push this even higher.
00:05:42.300 Yeah, exactly.
00:05:43.140 So before the election, 2021 per person spending was going to be about $12,700.
00:05:49.500 But based on campaign promises by the Liberals,
00:05:52.680 that would actually take you to over $13,000 per person.
00:05:56.280 And, you know, obviously they're in a minority government situation,
00:05:58.860 so they're going to have to work with opposition parties in order to pass budget bills
00:06:03.140 and survive as a government.
00:06:04.640 So we also looked at, you know,
00:06:05.800 one of their likely partners in governing at the NDP's platform.
00:06:09.640 And that would, if they were to implement all of the promises in that platform,
00:06:13.780 it would take you to almost $14,000 at about $13,700.
00:06:17.960 So it's certainly a significant increase in spending,
00:06:21.100 and we're likely to see, you know,
00:06:22.400 that per-person spending range somewhere between that $13,000 and $13,700 per person.
00:06:27.340 So that's certainly a significant increase,
00:06:30.560 maybe about, you know, over 50% higher than what we saw during the 2009 recession.
00:06:36.100 And we also know, just from looking at other reports,
00:06:39.040 including the Parliamentary Budget Office's assessments,
00:06:41.600 that we could be on track to run up deficits.
00:06:44.220 I think the one scary statistic was until 2070.
00:06:47.260 And I know that a lot of this is all interconnected.
00:06:49.880 The more that's being spent to maintain and pay for debt,
00:06:53.060 to service the debt, all of that,
00:06:54.740 the more money that is coming from tax revenue to do that,
00:06:58.000 which means the less that is available for services, thus more taxes.
00:07:01.220 I mean, all of these things are very much interconnected
00:07:03.100 when Canadians are, by and large, paying more.
00:07:06.380 Well, exactly.
00:07:06.960 You get into that vicious cycle of deficits and debt over time.
00:07:10.420 And at the same time, you know, not only do we have federal challenges,
00:07:13.800 we also have provincial challenges as well.
00:07:16.100 We have an aging population in Canada,
00:07:18.360 a rising health care cost.
00:07:19.540 So, you know, provinces are asking for more money
00:07:21.700 from the federal government right now.
00:07:23.440 So significant challenges really all across governments in Canada.
00:07:27.840 You know, we're seeing spending really rise all across the country
00:07:31.060 at the local, provincial and federal level.
00:07:33.660 So there's going to certainly be big challenges
00:07:35.760 coming out of COVID for all governments.
00:07:38.600 What do you think it says that we're spending just monumentally more
00:07:42.080 than even in the midst of the war,
00:07:43.940 which is often held up as, you know,
00:07:45.620 the gold standard for when spending is just going to be so wildly out of check?
00:07:49.540 Yeah, well, that's something that we found
00:07:51.300 was especially interesting in our analysis, too.
00:07:53.840 Even just looking at 2018 and 2019 before COVID,
00:07:57.480 so really before any crisis period as well,
00:08:00.480 you know, we are spending far more than we were
00:08:03.180 during the 2009 recession and before World War
00:08:06.440 and what we were spending at the peak of World War II as well.
00:08:09.660 So really during the good times during 2018 and 2019,
00:08:13.740 you know, we were spending higher than what we were
00:08:15.420 during the crisis levels.
00:08:16.440 So this has kind of had a compounding effect.
00:08:18.540 If you're already spending more than you were during crisis periods,
00:08:21.520 during the good times, when bad times come around,
00:08:24.380 then that only, you know, spiral out of control even more.
00:08:27.300 And then when you're setting that new normal in 2022 and beyond,
00:08:31.080 what you're going to see is, you know,
00:08:32.320 spending again rising and rising and rising further
00:08:34.960 beyond what we were, you know, during 2009
00:08:38.020 or during the Second World War.
00:08:39.860 So it's certainly concerning in that aspect for sure.
00:08:42.040 To look a bit more forward instead of backward here,
00:08:45.500 I mean, is this a fiscal death sentence
00:08:47.360 or is it possible to start pushing these figures
00:08:49.940 in the right direction?
00:08:50.800 Because I know that we have seen,
00:08:52.640 if you look at the chart and there's a good infographic
00:08:54.860 that accompanied your report,
00:08:56.420 what we have seen decline notably in the 80s and 90s
00:08:59.820 towards the 2000s,
00:09:00.980 but we're also dealing with such higher numbers now.
00:09:03.920 So is it possible to start pushing back the other way?
00:09:06.820 Well, certainly, you know,
00:09:07.620 I would reference the 1990s, for example.
00:09:10.060 I mean, we're not at the near fiscal crisis
00:09:12.180 that we saw during the 90s,
00:09:13.940 but, you know, as things kind of get out of control,
00:09:16.700 then you can get into a situation like the 1990s again.
00:09:20.200 But they made a lot of decisions during the 90s,
00:09:22.440 you know, spending reviews,
00:09:24.320 you know, the Chrétien and Martin government, for example,
00:09:27.560 cut per person spending really by about 17%
00:09:30.160 over a three-year period.
00:09:32.060 So it was a significant change that they had to make,
00:09:34.460 but obviously they had to make difficult decisions.
00:09:37.620 Because they had high interest costs
00:09:39.820 and debt interest costs essentially took up
00:09:42.500 about one in every $3 of revenue at that point.
00:09:45.320 Obviously, we're nowhere near that right now.
00:09:47.820 But certainly, you know,
00:09:48.920 you can get to a point in the future
00:09:50.740 where you have to make these difficult decisions.
00:09:53.020 So the longer you put off these decisions,
00:09:55.620 you know, the harder and harder it gets
00:09:56.900 to return to budget balance and to prudent finances.
00:10:01.240 Now, I have to say something,
00:10:02.840 just on a technical note here.
00:10:04.040 I know you've broken it down in chunks here
00:10:07.860 by, you know, notable events,
00:10:09.420 but also terms of government.
00:10:11.020 And I'm guessing that's very deliberate
00:10:12.360 to look at it that way rather than just individual years.
00:10:16.200 Yeah, exactly.
00:10:16.820 We wanted to show, you know,
00:10:18.160 we're kind of ranking prime ministers
00:10:19.420 kind of on the amount of spending
00:10:21.120 over their terms as well.
00:10:22.800 We obviously want to correct, you know,
00:10:23.880 certain prime ministers had recessions
00:10:25.660 while others didn't.
00:10:27.040 So we want to account for all those different factors.
00:10:29.940 You know, but what we really see,
00:10:31.340 you know, in the ranking of prime ministers, for example,
00:10:34.220 is that Justin Trudeau ranks the highest
00:10:36.720 on the increase in per person spending
00:10:39.100 since the Second World War
00:10:40.560 at about 11.7 to 12.4%,
00:10:44.160 depending on the figure in 2021.
00:10:46.900 So there's significant increases
00:10:48.400 in per person spending.
00:10:50.240 And, you know, Trudeau also ranked fairly high
00:10:52.160 even before COVID as well on that list.
00:10:55.740 Yeah, that's the thing as well.
00:10:57.840 I mean, lest anyone blame the pandemic,
00:10:59.460 we were already at a record high in 2016 to 2020,
00:11:03.060 outpacing the previous record of 2009,
00:11:05.940 which was when the recession was.
00:11:07.180 So I wouldn't let anyone use that
00:11:09.020 as a kind of an escape hatch
00:11:10.440 for accountability on this.
00:11:12.520 Yeah, well, one of the interesting things
00:11:14.020 that we found in our analysis is,
00:11:15.860 you know, Justin Trudeau is actually on track
00:11:17.840 to record the five highest years
00:11:19.760 of spending in Canadian history
00:11:21.720 based on 2018 to 2022.
00:11:25.000 So if the spending plans that they laid out
00:11:26.760 in the election come to fruition,
00:11:29.340 we'd actually see, you know,
00:11:30.320 not only before the pandemic
00:11:31.360 and after the pandemic,
00:11:33.040 you know, we'd see those highest years
00:11:34.680 in Canadian history for spending,
00:11:36.740 which is certainly concerning there.
00:11:38.960 Well, that's one way to put yourself
00:11:40.320 on top in the history books.
00:11:42.100 Jake Fuss, Senior Economist
00:11:43.340 with the Fraser Institute,
00:11:44.860 the report in question.
00:11:46.700 You can catch by looking at
00:11:48.360 Prime Ministers and Government Spending,
00:11:50.040 the updated 2021 edition,
00:11:51.800 so brand new.
00:11:52.680 Jake, always a pleasure.
00:11:53.660 Thanks for coming on.
00:11:54.440 Thanks very much for having me on.
00:11:56.320 Thanks for listening to
00:11:57.280 The Andrew Lawton Show.
00:11:58.520 Support the program by donating
00:11:59.900 to True North at www.tnc.news.