Juno News - October 15, 2021New report warns of ‘new normal’ of government spending
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Summary
A new report from the Fraser Institute finds that in 2021, federal government spending will be significantly higher than it was in 2008, 2009, and certainly beyond. In this episode, Andrew Lawton and Jake Fuss discuss what that means for the future of government spending.
Transcript
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We've talked a lot about what the new normal is going to look like,
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life after COVID, how long it's going to be until we can get back,
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all of those things that we had from the big things to the small things,
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knowing if you're allowed to shake someone's hand when you meet them.
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But one thing that is going back to the old normal is government spending.
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There has not been a reality check to government.
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In fact, they may be more empowered to spend money after all the programs
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that a lot of Canadians, I think, in fairness, were in need of last year.
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New report from the Fraser Institute finds that in 2021,
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we're still seeing monumental spending, vastly outpacing even recession years,
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Jake Fuss is a senior economist with the Fraser Institute and joins me now.
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Jake, good to have you back on the show. Thanks for coming on.
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So this report here, I think it's interesting because when you look at this,
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everyone knows last year was going to be a bit of a write-off if you wanted fiscal austerity,
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governments around the world spending hundreds of billions, trillions of dollars.
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A lot of those programs have carried into 2021, though, it looks like.
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Yeah, well, while COVID has certainly created difficulties for government finances across Canada,
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what we're kind of seeing now is the new normal level of federal spending is really at unprecedented levels in Canadian history.
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So what we actually see in 2021, for instance, we're expecting per-person spending to be over $13,000.
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This would be significantly above what we saw during the 2009 recession and during the peaks of World War II.
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It's also significantly above the levels that we saw before COVID in 2019,
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which were already at record levels in Canadian history.
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So it's certainly concerning to see that new normal is going to be actually above what we even had before COVID.
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Is it fair to call 2021 normal or extrapolate normal from that,
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given that we are, as you note, still in the midst of a lot of the hardship and heartache from the COVID era?
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I mean, ultimately, you know, we still do have some COVID-related spending, some emergency spending that's going on in 2021.
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But we actually do in our analysis, we also look at 2022, which is expected to be a little bit more normal than 2021.
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And while per-person spending will actually decrease a little bit in 2022,
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it'll still be, again, significantly above what we saw before COVID.
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So we're expecting per-person spending at the federal level to be about 12% to 18% above what we saw in 2019,
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And again, 2019 was already at record levels in Canadian history.
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I think that's probably a good barometer of where we're headed in the future as well.
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Now, are we adjusting for inflation with these numbers?
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So all of our numbers are adjusted for inflation.
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So $1 in the year 1870 is equivalent to $1 in the year 2021, for instance, to make it comparable.
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So, I mean, with that being said, what's to account for such a significant jump,
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Because, again, in a recession, people would, I think, fairly expect government to be spending a lot of money
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We can argue about whether that's the best fiscal policy,
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but I think that's politically where the narrative has gone.
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What's to account for, even in 2018-2019, pre-pandemic,
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significantly more spending per person than in 08-09?
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So really what we saw, you know, beginning in the 2009 recession
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was a big spike in per person spending across Canada.
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And then there was a slight decline following that recession for about five or six years.
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And really we saw the spending starting to ramp up again in about 2015-2016
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as the new government started to implement new programs, expand, you know, programs as well.
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And really what we saw between about 2015 and 2018 or 2019 or so,
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we really saw per person spending increase by about $1,000.
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So on an individual basis, you know, the federal government was spending more than $1,000 per person
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in addition to what they had already spent before that.
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So we saw that start to climb up above about $9,300 a person.
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So, you know, obviously this had to do with new programs,
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like the Canada Child Benefit and a number of other programs.
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And now what we're seeing, you know, after COVID,
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you know, talking about introducing new programs as well,
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that are only going to compound these costs as well for Canadians.
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I know you look at the spending specifically in terms of the cost
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and not necessarily delving into the detail of the individual programs.
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But as a taxpayer, I'd look at this number and say,
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am I getting, you know, 15, 16, 17% more from the government?
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Am I getting that much more for being a Canadian taxpayer?
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And I think for a lot of people, the answer would be no.
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Well, it's certainly, you know, a question for all Canadians to kind of answer too,
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you know, looking at the tax rates that you pay relative to, you know,
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kind of the bang for the buck that you get for all these various services,
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and also understanding the different cost implications.
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If we have, you know, deficits that we're running because of all this spending,
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really what we're doing is implementing higher tax rates in the future
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At the same time, we're going to face, you know,
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debt interest costs at the same time in the future,
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So there are costs and trade-offs to every decision that they make in Ottawa.
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So it's certainly something important for all Canadians to be informed of.
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Now, I know you looked at election spending as well,
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or specifically election promises, and that is going to, as I understand it,
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So before the election, 2021 per person spending was going to be about $12,700.
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But based on campaign promises by the Liberals,
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that would actually take you to over $13,000 per person.
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And, you know, obviously they're in a minority government situation,
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so they're going to have to work with opposition parties in order to pass budget bills
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one of their likely partners in governing at the NDP's platform.
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And that would, if they were to implement all of the promises in that platform,
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it would take you to almost $14,000 at about $13,700.
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So it's certainly a significant increase in spending,
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that per-person spending range somewhere between that $13,000 and $13,700 per person.
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maybe about, you know, over 50% higher than what we saw during the 2009 recession.
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And we also know, just from looking at other reports,
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including the Parliamentary Budget Office's assessments,
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I think the one scary statistic was until 2070.
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And I know that a lot of this is all interconnected.
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The more that's being spent to maintain and pay for debt,
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the more money that is coming from tax revenue to do that,
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which means the less that is available for services, thus more taxes.
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I mean, all of these things are very much interconnected
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You get into that vicious cycle of deficits and debt over time.
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And at the same time, you know, not only do we have federal challenges,
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So, you know, provinces are asking for more money
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So significant challenges really all across governments in Canada.
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You know, we're seeing spending really rise all across the country
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So there's going to certainly be big challenges
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What do you think it says that we're spending just monumentally more
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the gold standard for when spending is just going to be so wildly out of check?
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was especially interesting in our analysis, too.
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Even just looking at 2018 and 2019 before COVID,
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you know, we are spending far more than we were
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and what we were spending at the peak of World War II as well.
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So really during the good times during 2018 and 2019,
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you know, we were spending higher than what we were
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If you're already spending more than you were during crisis periods,
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during the good times, when bad times come around,
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then that only, you know, spiral out of control even more.
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And then when you're setting that new normal in 2022 and beyond,
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spending again rising and rising and rising further
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So it's certainly concerning in that aspect for sure.
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To look a bit more forward instead of backward here,
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or is it possible to start pushing these figures
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if you look at the chart and there's a good infographic
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what we have seen decline notably in the 80s and 90s
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but we're also dealing with such higher numbers now.
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So is it possible to start pushing back the other way?
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but, you know, as things kind of get out of control,
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then you can get into a situation like the 1990s again.
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But they made a lot of decisions during the 90s,
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you know, the Chrétien and Martin government, for example,
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So it was a significant change that they had to make,
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but obviously they had to make difficult decisions.
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about one in every $3 of revenue at that point.
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where you have to make these difficult decisions.
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to return to budget balance and to prudent finances.
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to look at it that way rather than just individual years.
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So we want to account for all those different factors.
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you know, in the ranking of prime ministers, for example,
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we were already at a record high in 2016 to 2020,