Fraser Institute Says Mounting Debt To Save Economy Will Cost Canadians In The Future
HALIFAX – A Halifax-based policy analyst for the Fraser Institute is warning taxpayers they should be concerned about the country’s rising debt and deficit, saying that borrowing too much money now can lead to economic pain in the future.
“Absolutely, Canadians should be concerned with both the level of the federal deficit and the resulting debt that has increased substantially as the result of the pandemic,” said Alex Whalen, who was formerly vice president of the Atlantic Institute for Market Studies, before it merged with the Fraser Institute last year.
“There’s no question that the current rate of spending from the federal government is not sustainable. And what we are doing as a country with the current levels of spending, is shifting this burden to some point in the future when that must be dealt with.”
The federal government, since the pandemic, has taken on the burden of propping up Canada’s economy. It is estimated, by the Liberals themselves, that $8 out of every $10 spent fighting the ills of Covid-19 is spent by the Federal government.
But the government has been relying on low-interest loans to make these programs function. The current federal deficit is projected to be $381-billion, with another $100-billion in stimulus planned to be spent in the next few years. The Fraser institute estimated Canada’s net debt will be $1.1 trillion for 2020-2021.
In a recent Q and A with the Halifax Chamber of Commerce, Finance Minister Chrystia Freeland said Canada can afford these massive loans, due to the historically low interest rates the country is receiving on these loans. She also warned that Canada would have a “scorched earth” economy if government didn’t provide financial support for residents and businesses.
Whalen agrees that the government has a big role to play in providing support during the pandemic. However, he criticizes the spending as not being “targeted” enough, pointing out the government hasn’t revealed its full plan on where the money will be spent.
“There’s no question that governments have a role to play in terms of income support and ensuring the health and safety of the public,” said Whalen. “But it is also very important that the government keep an eye on government spending and debt. And we’re at a time where the government is spending historically high amounts of money. There are legitimate questions about where some of that money is going.”
“It’s true that interest rates are historically low and that current federal government financing rates are the lowest they’ve been in some time, but that does not, at all, mean that the government is not exposed to risk.”
One thing that has been noticeably missing from the Liberals economic policy is a plan to repay this heavy debt burden when the pandemic is over. There has been little if any public discourse on what this will mean for citizen’s tax burden in the future.
This is important because, if political history has shown us anything, it’s easy for the government of today to borrow money. That’s because it will often be the government of tomorrow to figure out any financial fallout.
“Overall, I think the important point is that all of these programs are being debt-financed,” notes Whalen. “That is a concern. And that’s a concern because debt and deficit now simply mean higher taxes later.”
Whalen also has concerned about the economic future of Atlantic Canada. In Nova Scotia, for example, it was revealed in July that the province had a projected deficit of $853-million. But, even before the pandemic, there were warning signs.
Whalen says studies have shown that 60 per cent of the Nova Scotian economy, before the pandemic, was “occupied by government,” meaning that people rely far more on public money than private investment for economic output.
So why is a big government presence bad for the economy? Whalen says, at a certain point, there is a “crowding out effect” where government ends up competing with the private sector. This effect, in turn, stunts economic growth.
“The size of government…research shows that has a direct relationship with economic growth,” says Whalen. “Higher levels of government, in terms of size, are associated with lower levels of economic growth.”
“When you look at economic growth in Canada, the four provinces in Atlantic Canada, for most of their history, have been under performers. So, we point to the size of government as one potential cause as to why these economies are underperforming.”