Western Standard - Carney budget to bring inflation, cut debt while you can

00:00:00.000 Good evening, Western Standard viewers, and welcome to Hannaford, a weekly politics show.

00:00:21.440 It is Thursday, November 6. To talk about what the Mark Carney budget means to you,

00:00:27.380 I'm pleased to welcome back Dr. Tim Sargent, an economist and the Director of Domestic Policy

00:00:33.220 at the famous McDonnell-Laurier Institute in Ottawa. Dr. Sargent, welcome back to the show.

00:00:39.300 Thanks for having me, Nigel.

00:00:41.220 It's a great pleasure. Tim, once upon a time you were a Deputy Minister,

00:00:45.460 you were in the PCO, the Privy Council office, you were in finance, you're used to the salesmanship

00:00:51.060 that goes with these things. So can you strip away the syrupy words and tell us what they

00:00:57.060 just did here with this budget happy to nigel and there's a lot of words it's forward in six pages

00:01:04.000 um even i have trouble going through it and i helped used to help write them as you said

00:01:08.620 um the most consequential budget in canadian recently in history is the 1995 budget which

00:01:13.900 is less than half the length of this one um so in terms of the budget itself i mean there's

00:01:19.260 lots of graphics lots of political message but to strip away i mean you basically got to ask

00:01:24.880 three questions about what the government is trying to do here. Firstly, are they focusing

00:01:29.520 on the right problem? And I think for many years, certainly over the Trudeau government,

00:01:34.800 they're actually not focusing on the right problems. But I think this budget does. The real

00:01:39.840 problem, we have two problems in Canada. We have a short-term economic problem coming from the Trump

00:01:43.840 administration and its attack on our trade. But then we have a more important long-term problem

00:01:51.280 with productivity in this country, which has been lagging behind the United States for at least a

00:01:56.880 decade. Underneath that is low investment. We simply have not been investing as a country,

00:02:04.000 and here I'm talking about the private sector. I think the budget recognizes that. It recognizes

00:02:10.160 that these two economic problems are serious, and the government needs to address them.

00:02:16.080 The second question you would have is, okay, we've got the right problem.

00:02:20.860 Do we understand what's causing the problem?

00:02:23.640 And I would say, I think most economists would say that the challenge of the last 10 years

00:02:28.880 is government has gotten too big, immigration is too high, taxes are too high, there's too

00:02:34.540 much regulation.

00:02:35.920 I think the budget recognizes some of those problems.

00:02:40.660 There's an attempt to cut the size of government, reducing immigration, something on taxes.

00:02:46.080 until you talk about regulation so i think that they mostly understand the problem um understand

00:02:53.360 what's causing the problem but the third and most important part of it is what are you actually going

00:02:57.680 to do to address the problem um and do you have do you have the strength the willpower and do you

00:03:03.840 have the right ideas to address address those problems it's all very well to you know have a

00:03:08.640 problem understand the causing but the main thing is to actually go ahead and deal with the problem

00:03:13.580 And here, I think, is where the budget really comes up short.

00:03:17.520 I think you have a bunch of half measures.

00:03:20.260 They cut the public sector, but by nowhere near as much as it's grown over the last few years.

00:03:26.080 They cut taxes, but not as much as I think that they could.

00:03:30.860 And it's focused at the low end.

00:03:34.320 This cuts to see corporate income tax, but perhaps not as big as they need to be.

00:03:38.440 Immigration is cut, but by not as much as it should to be.

00:03:40.740 So there's a bunch of half measures.

00:03:42.460 There's also a fair amount of waffle about the emissions cap.

00:03:46.020 Do we have an emissions cap? Don't we have an emissions cap?

00:03:48.180 It's a bit like Schrodinger's cap right now.

00:03:49.780 It's sort of, we don't really want to open the box and see if it's there or not.

00:03:53.980 Electric vehicle mandate, is that staying or not?

00:03:56.720 Well, they're going to do a review. They're going to tell us a bit more later.

00:04:00.460 And then there's a few areas where I think they're clearly doubling down on the wrong policies.

00:04:05.920 On housing, for instance, it's not government that's going to build the homes to solve the housing crisis.

00:04:11.880 You've got to be cutting regulations, making sure that interest rates aren't too high.

00:04:16.460 If you look at the direction of climate policy overall, I mean, they're still very much focused on 2050 and net zero.

00:04:24.440 We want to increase the industrial carbon tax to $170 at a time where a lot of our businesses are going to be struggling, throwing a lot of money at infrastructure.

00:04:34.820 sure um so you know if you if you strip away a lot of the salesmanship um i think they're trying

00:04:41.180 to get into problems but a lot of these solutions are either they're either not enough or they're

00:04:45.600 going in the wrong direction well let's uh there's a number of things there that are particular

00:04:51.440 interest to our audience let's go back to the first to the emissions cap i mean for those are

00:05:00.240 the people not involved in the oil industry directly.

00:05:04.660 That's a bit of jargon.

00:05:05.720 What it means is that the large oil companies,

00:05:09.680 especially those involved in extracting oil from the oil sands,

00:05:14.700 are being told that they can't emit as much carbon dioxide

00:05:19.120 because of the climate change narrative.

00:05:23.580 And that is a constriction on production.

00:05:26.120 So to give them their due, the oil companies have got quite creative about how to produce the same amount of oil with less carbon dioxide, even pushing the stuff underground with massive pumps and incredibly low temperatures, so carbon sequestration.

00:05:46.960 But even after you've done all that, there is still carbon produced.

00:05:53.560 And so the issue seems to be that the government in this budget is predicting, is promising,

00:06:00.600 that it will increase the price of carbon that will be charged to the producing companies

00:06:07.140 from $80 now to $170 in about five years' time.

00:06:11.800 my question is how does that flow out into the marketplace does it mean i don't see how it can

00:06:23.580 fail to mean the higher prices for gasoline and other energy products uh and then more generally

00:06:30.740 does this give the industry a chance to even stay afloat because they're producing for export

00:06:38.360 And this is going to push the price up.

00:06:40.860 Absolutely.

00:06:41.700 And it's a very, very competitive market for oil, for gas, for refined gasoline.

00:06:48.540 What's interesting is if you look at the budget, the budget actually, the section of the budget that talks about climate starts out by saying how good our companies are at actually having low emissions and how much progress that they've made.

00:07:02.460 and they compare Canada to many other countries around the world that haven't made the same

00:07:07.020 progress in reducing emissions in the oil and gas sector. So you could say, well, Canada's so good,

00:07:13.980 why do we need to go further? Why can't we just wait for everybody else to catch up with where we

00:07:17.740 are? But the government, of course, it's intent on squeezing every last carbon dioxide emission

00:07:26.780 out of the Canadian economy.

00:07:28.820 Only in the Western Canadian economy.

00:07:31.420 You can still import all the oil you want from Nigeria or Kazakhstan,

00:07:37.020 and this doesn't apply.

00:07:40.540 That's right.

00:07:41.280 I mean, the world wants high economies.

00:07:43.560 How do they square those things?

00:07:45.940 And, of course, at the same time, they want to see more investment.

00:07:48.600 The whole budget is supposedly about incenting private sector investment,

00:07:51.960 and oil and gas sector is a huge investor in the Canadian economy.

00:07:57.340 So unfortunately, what this is going to do, if they're serious about it, is it's just going to

00:08:03.100 make further oil and gas investment in the Canadian economy uneconomic. Private sector

00:08:09.260 investors have lots of places to put their money around the world, including in places that have

00:08:15.260 very high emissions in their oil and gas sectors. But international investors really don't care

00:08:21.260 about that. And one thing that we've seen over the last few years is that even just over the last

00:08:26.460 years, they've stopped pretending to care. You've seen the whole ESG, environmental, social and

00:08:34.620 governance movement, which is designed to put pressure on companies and financial institutions

00:08:39.740 to not invest in so-called dirty industries. That has really ground to a halt. So investors right now,

00:08:47.660 they're being very hard-nosed and they won't value money for that dollar and that dollar won't come

00:08:51.980 to Canada if the condition is outright. It's very obvious from the big numbers that have been

00:08:59.580 committed to what they describe as investment. The number of $115 billion was given out for

00:09:07.980 infrastructure. Well, what's the infrastructure going to be? It doesn't seem like there's going

00:09:13.660 to be much need for pipelines, but in any case, this is all government investment.

00:09:20.060 it seems to me that that is probably if you wanted to build an economy the last people

00:09:25.740 you would want doing it would be the government you would want to attract private capital

00:09:29.980 and 20 years ago we were we were even 10 years 10 years ago we were attracting it like crazy

00:09:37.180 it's gone away so is there actually do you think uh reading for reading between the lines as much

00:09:46.140 as you can you you think that this government actually has a comfort with being in charge

00:09:52.700 of the economy and rather than just being a keeper of the rules actually wants to run things

00:10:00.540 i think that's right um i mean you do because if that's if i'm right i'm scared

00:10:06.940 because they they see the problem and you know it's great to have smart people at the top of

00:10:11.660 of government. Mark Carney is very smart. I've worked with him for him, been across the table

00:10:17.460 for him. The challenge with being very smart, though, is that you think that every problem has

00:10:22.100 a solution and that you need to be that solution. And the reality is, however smart you are,

00:10:28.420 the real way to get investment is not for somebody at the top of government, however smart, to say,

00:10:33.160 well, we need to invest here or we need to invest there. You don't have all of the information

00:10:37.240 needed for that. You're not the actual person on the ground who knows what market demand is,

00:10:44.280 knows what the costs are, and has that market discipline that forces you to make correct

00:10:50.280 economic decisions. Governments can afford to indulge themselves and often end up investing

00:10:58.440 in things that the private sector doesn't want to invest in, but for good reason, because they

00:11:03.960 actually don't make any economic sense. You can see this on housing as a good example.

00:11:09.960 We're going to be spending billions of dollars to build a very small number of houses because

00:11:16.280 when the government builds things, it's always a lot more expensive. The government's not very

00:11:20.600 good at getting value for money for its dollar because it's not the government's dollars,

00:11:24.360 they're ultimately taxpayers' dollars. But when it's individual, when it's a company,

00:11:28.760 it's their dollars or they're responsible to their shareholders and they will actually make

00:11:33.000 much better decisions than government. Well, you know, you're making it sound,

00:11:37.800 and I think perhaps you intend to make it sound like a technocrat's budget,

00:11:43.480 and of course that is one of the frequent criticisms of Mr. Carney, that he is

00:11:51.320 slightly less than human and therefore a technocrat. It's an unkind thing to say, but

00:11:58.040 but, you know, he doesn't do well on personality.

00:12:01.240 So the thing is, I'm looking through this budget,

00:12:04.480 and I confess I haven't gone all through 493 pages,

00:12:07.920 but I look through the budget and I go out and I think,

00:12:11.140 well, who is this really trying to please?

00:12:13.480 If I was a liberal, what would I look at in there and say,

00:12:17.640 ah, that is going to be good for me, and he gets my vote.

00:12:22.600 what what do you think that is what is there there that you could actually go out and sell

00:12:30.020 to your liberal voter base i mean the i mean there's not a lot there if i mean if you are

00:12:37.700 let's say a trudeau liberal um which probably means actually in your heart and any peer

00:12:42.240 just an any peer likes to be in government um you know there's not a lot there and in many ways

00:12:48.300 So they're going in the opposite direction from the two-door government.

00:12:52.080 The cuts to the public sector, maybe not as big as some economists would like to see,

00:12:56.520 but they're definitely there.

00:12:59.360 The emissions caps in question, the EV policy is in question.

00:13:04.460 We're seeing cuts to immigration, significant cuts.

00:13:08.740 I mean, there's definitely some more spending there.

00:13:10.660 As I say, there's on housing, there's on infrastructure.

00:13:14.140 There's $5 billion, for instance, that's going to be spent on building hospitals.

00:13:17.760 Now, you know, I like hospitals as much as an ex-person, but I don't think it's the federal government's job to build hospitals.

00:13:24.980 That's why we have provincial governments. 0.99

00:13:26.560 But, you know, if you're a liberal, you often, liberals tend to care less about what the federal provincial division of powers should be and are always keen for the federal government to interfere in areas of provincial competence.

00:13:40.120 So you do have some of these, you know, nice little spending items.

00:13:45.400 But it's certainly not the same as we've seen in some previous liberal budgets.

00:13:50.960 Well, and so I'm wondering if, in my own mind, whether I can honestly portray this as the whole thing,

00:14:00.020 as an extension of federal government involvement and control in the Canadian economy overall.

00:14:08.880 Is that a fair assessment?

00:14:12.100 I think that's right.

00:14:13.540 I think they're trying to catalyze investment, as they put it, across a whole series of sectors, including areas where we should really see the provinces take the lead.

00:14:26.040 Natural resources is a good example where, I mean, really they should be pulling back and allowing the provinces to manage their natural resources and decide what appropriate emissions cuts are, for instance.

00:14:38.480 And that's basically what the Constitution says.

00:14:42.280 It should be provinces that manage the natural resources

00:14:45.100 and provinces that decide what infrastructure they need.

00:14:49.260 Now, if it crosses a provincial boundary, that means you need a pipeline,

00:14:53.300 then, yes, the federal government should step in.

00:14:56.480 But, of course, we're not actually seeing anything really in this budget about pipelines.

00:15:01.060 They stay away from that particular infrastructure investment,

00:15:04.440 even though they want to double exports to the rest of the world.

00:15:07.620 well, I don't see how you can do that without exporting more oil and gas,

00:15:12.040 particularly over the Rockets to the Pacific Ocean.

00:15:16.640 Okay, just to be the devil's advocate for a moment,

00:15:20.220 if I were a liberal flack wanting to present this in the most attractive way that I could,

00:15:27.600 I'd build the argument something like this.

00:15:29.780 The global markets might give this a passing grade

00:15:32.920 because strong for investment, trade and stability,

00:15:37.620 we're sending a clear signal that we have ambitious capital incentives, bold infrastructure

00:15:44.900 plans, pragmatic resource strategy. Did I say tragedy? It all sets the tone as the country

00:15:53.520 pivots to compete both in North America and beyond. And not all debt is bad. Sometimes if

00:16:00.460 you put it to good use, then debt is the right thing to do. If I were to write that,

00:16:07.620 would you grudgingly endorse it or would you come back and say,

00:16:11.620 no, no, no, you clearly missed the point?

00:16:15.460 Look, I mean, there's some of that in there.

00:16:18.940 The problem is they're trying to have their cake and eat it in many ways.

00:16:22.540 They're trying to have, yes, we've got some corporate tax incentives

00:16:26.160 like expensing or manufacturing and processing, for instance,

00:16:29.200 but we also want to spend more and increase the deficit.

00:16:34.820 We also want to put money into housing and infrastructure.

00:16:39.700 So which is it?

00:16:40.540 Is this a making government smaller budget or is it a making government bigger budget?

00:16:44.580 At the end of the day, if we look at what's happening with spending, if we look at the deficit, which is going to stay around 2% of GDP for the foreseeable future, you see debt charges going up, debt charges, the cost of the nation's credit card.

00:16:59.360 it's going up 40%, 40% over the next five years, reaching around 70 billion. I mean, that's a lot

00:17:07.740 of money. So you're saying that our annual debt charges that the federal government will pay to

00:17:13.780 the people who lend it money are going from to $70 billion. What are they today? That would be

00:17:21.520 about $40 or $50 billion.

00:17:24.880 So almost, not quite half as much again, but getting that way.

00:17:30.180 Yeah, exactly.

00:17:31.800 Well, you know, one of the things that as a conservative opinion writer,

00:17:36.960 we tend to keep coming back to say is that government borrowing is inflationary.

00:17:43.240 And certainly we've seen outright increase in borrowing for the next, well, actually

00:17:51.880 they're not ever forecasting a balanced budget.

00:17:58.460 Now, there used to be a time when they say, give us three or four years to amuse ourselves

00:18:03.440 and then we'll get back to a balanced budget.

00:18:05.360 Well, now I think this year's deficit is going to be $78 billion.

00:18:11.420 dollars they will borrow that next year is i think i'm right 65 billion dollars which they will then

00:18:17.600 go to the market for and 50 billion another 50 billion um a couple of things about that one is

00:18:25.500 that um mr carney when he was campaigning before the last election actually said he would go out

00:18:32.100 and do that he said he would borrow nearly a quarter of a trillion dollars well now he is

00:18:38.060 planning to do that and i just um i'm rather struck generally speaking you don't uh you

00:18:45.060 don't campaign and go out and say you're going to get yourself into horrible debt

00:18:48.300 so did he have this in mind all along

00:18:52.160 well i think he is very bought into the arguments yes that if you you know there's good spending

00:19:00.180 and bad spending good spending is investment spending and bad spending is current spending

00:19:05.920 if you like um the question is and i don't think economists would disagree with that the question is

00:19:11.840 is where you draw that line and the problem is government starts saying rather than spending

00:19:17.040 good and all kinds of things suddenly become investment where all you really do is subsidizing

00:19:22.560 industries or writing checks for municipalities to build community centers or high-speed rail

00:19:28.960 networks that we don't necessarily need um it's it's a very very slippery slope um and you know

00:19:36.080 the politics will always push you into wanting to spend more and more and therefore you're just

00:19:42.080 going to try and run as much as you can under that investment banner and those those governments

00:19:47.440 that have tried to you know use this investment you know this capital but interpreting capital

00:19:53.040 budgeting from from operating and trying to deal with them separately um as happened in alberta

00:19:57.920 of course, when Alison Redford was premier, it's happened in the UK, they've always gone into

00:20:03.320 trouble and financial markets will always look through that. Well, what financial markets care

00:20:07.700 about is what you said. It's how much money does the government have to borrow? And from an economic

00:20:12.720 perspective, those are resources that can't be used in the rest of the economy. So that's the

00:20:17.700 government taking money away from the rest of the economy from Canadians and saying, instead of

00:20:21.980 letting you spend that, we're going to take that through taxes or we're going to borrow it in this

00:20:26.760 case, and that's money that isn't available for other things. And what that can do, as you say,

00:20:33.080 is it can push up demand in the economy, and that can push up prices.

00:20:37.400 Well, you say that money is not available for other things. And of course, you're absolutely

00:20:42.380 right. When the government is borrowing money, I believe I'm correct in saying that makes it

00:20:49.040 more expensive for the private sector to borrow, because somebody got there first, so now they

00:20:55.400 have to pay a premium to to get what they need um that's right if you want to yep if that is the

00:21:02.960 case what does that mean and here i want to really get particular about what this budget means for

00:21:10.300 ordinary canadians who probably haven't paid as much attention to the details of it as you have

00:21:16.500 um we've already talked about increasing the price of carbon to the producers which cannot fail

00:21:25.120 to translate into higher energy prices for the user.

00:21:31.480 And now we're talking about the government borrowing money,

00:21:34.700 forcing up the interest rates as it does so.

00:21:38.300 What advice would you give to that mythical, ordinary Canadian 1.00

00:21:43.660 about how he can prepare himself for a new round of inflation and high interest?

00:21:50.540 well i think uh you know we're seeing governments around the world borrowing more

00:21:57.140 um that's pushing up interest rates um and that's that's your signal to to look at how much debt

00:22:04.140 you're carrying pay down that debt um and just not be borrowing borrow less and save more um

00:22:09.900 because governments are doing the opposite you know i i'd like to be as fair as it could be

00:22:18.420 to any government that is working in our favor.

00:22:23.660 The key to all of this heavy spending, however,

00:22:28.100 is going to be effective implementation.

00:22:32.200 They seem great at setting up funds and agencies

00:22:35.440 to do great things.

00:22:38.340 Your opinion, two opinions, actually.

00:22:41.760 One, do they actually have the nose to do it?

00:22:44.860 And secondly, if you were grading this budget

00:22:47.520 like a teacher grades the essay where where would you put where would you put it well i think the

00:22:53.520 challenge for them is it it's not enough to have just a couple of small people very small people

00:22:58.480 at the top of government um it's not even enough to bring in a couple of people from from the

00:23:03.520 private sector which they've done with the major projects office with a couple of other

00:23:07.360 new institutions that they've that they've set up um that doesn't help if the rest of the

00:23:13.200 government machine just doesn't work very well and what we've seen over the last few years is

00:23:17.760 that government machine atrophy and not be able to do basic things like getting passports to

00:23:22.640 canadians on time for instance or asking their tax questions so the reality is you've got this

00:23:28.400 machine that doesn't that's creaky it doesn't work well and it actually you know to make it

00:23:33.600 would work well it takes several years of you know swapping out senior managers changing how you do

00:23:38.400 things improving performance getting rid of poor performers so i don't think you've got the right

00:23:44.880 machine to you know to implement this agenda at the speed that they want to to implement it um and

00:23:52.960 so you know the other challenges you know a lot of this you need to go a lot further on um getting

00:24:00.240 the government out of the way so that the private sector can actually produce prosperity because

00:24:05.120 only the private sector can do that reliably. So in terms of grading the budget, I applaud

00:24:12.060 the ambition, but I'm not sure that they're doing all of the things that they need to do.

00:24:19.600 So I think, and I'm not the only one I think who would come to this conclusion, I think we're

00:24:24.660 probably looking at a C. It's not a fail, but it's not the VA that the country needs at this moment.

00:24:30.340 all right well there's a lot of consensus around that so just to repeat that last uh bit of advice

00:24:37.780 that if you can do it reduce your debt and uh and uh brace yourself for another round of inflation

00:24:46.100 because it's on its way dr sergeant thank you very much for coming on the program great insights as

00:24:53.380 always and uh we may be seeing more of you in the near future as this thing unfolds thank you

00:25:00.020 for being here thank you for the western standard i'm nigel hannaford

Western Standard - November 07, 2025

Carney budget to bring inflation, cut debt while you can

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