Everybody’s spending, spending, spending

What a time to be Canadian! Canada has never been this united. United to spend!

From shining sea to sea to sea, we are awash in pride-swelling patriotism and debt-swelling red ink. The colour of our national flag has been transposed to the colour of our national books. A generational moment of new purpose in national spending will be remembered always by future generations paying it off.

In the wake of the 9/11 terrorist attacks, then-U.S. president George W. Bush famously told Americans to “go shopping” to maintain a normal life. For governments in Canada, spending is normal. It’s our version of not letting the terrorists win. The collective addiction of Canadians to government spending knows no provincial border or political affiliation. We are all-in for all-out public largesse.

This year only just begun will close with every government but one in a bigger deficit hole than last year. The first signs are upon us. Three provinces — British Columbia, New Brunswick, and Nova Scotia — have already announced the largest deficits in history at $13.3 billion, $1.3 billion, and $1.2 billion, respectively.

Canada’s richest province, Alberta, just tabled a budget with a forecast deficit of $9.4 billion for next year, almost double from last year’s budget. Saskatchewan’s premier just told his residents that there will be no surplus in that province’s March budget. “You will see a deficit,” he baldly stated the obvious as this year’s projected surplus turning into an almost a half-billion deficit, at least.

Quebec is expected to have a deficit of $12.5 billion for this fiscal year, up some $5 billion from the year before. Manitoba’s March budget will likely post the largest provincial deficit ever at $1.6 billion, a stunning doubling of what was projected a year earlier. Only Ontario is projecting an improvement in its financial position, with a modest decrease of this year’s deficit to $13.5 billion.

According to TD Economics, this all adds up to an “aggregate provincial budget (of) roughly $49 billion in (financial year) 2025/26, the largest shortfall outside of the pandemic since 2009.” A number that will only grow, not diminish.

The contemporary reasons for all this red ink are obvious: weaker economic growth which is dampening government revenues. Holding down growth is an injurious combination of U.S. tariffs on Canadian exports for sure; but American trade policy is causing broader global trade and investment uncertainty as countries and companies wait for it all to play out, affecting us. Consumer spending is also down along with what has been spurring much of Canada’s past economic engine, population growth.

At the same time, governments have been in an expansionary mode before, during, and since the pandemic. Some of this spending has been necessary; to shore up ailing health care systems that creaked and cracked during COVID. Other spending is on new priorities, particularly defence at the national level, but also on capital investment to try to keep the economy stimulated and meet long-standing infrastructure gaps.

But unless we return to a pre-Trump growth period to generate sufficient new revenues to pay for all this, today’s new spending will get baked into tomorrow’s provincial accounts everywhere. Left unaddressed, this will result in chronic, structural deficits that are much tougher to eliminate. And will cost citizens and taxpayers more in the end to eventually fix. The reality is that nothing is temporary when it comes to government spending.

When governments do try to ration their spending appetite — the restraint “bust” after the spending “boom” — they typically do so by temporarily reducing the number of people on the public payroll while effecting across the board cuts that result in temporarily trimming services. We’re promised newly discovered “efficiencies” in public services and “productivity” in public servants, as if this shouldn’t be sought anyway, all the time, by those in charge.

Governments, however, never take on the real heavy lifting of getting out of programs and services altogether. A dollar not spent by government is always the first dollar saved by government. Not starting a new program means more dollars for existing programs and services. None ever embrace “less is more” as a governing mantra. We have collectively grown addicted to more and bigger. Constituencies of interest groups and stakeholders work overtime to capture the budgetary process to favour their needs and priorities. Politicians get this and respond accordingly. The spending cycle continues.

A feature of every budget paper is a short-term financial forecast called “the path to balance.” This is necessary to reassure money lenders finance departments rely upon to fund more debt. A feature of every budget this year will very likely be “no path to balance.” This is a signal that chronic, structural deficits are building up, that the debt chickens have come home to roost.

There is no path to balance if those deficits are the result of chronic, structural factors in the Canadian and world economies not just our government spending. That would mean less revenue, longer, putting intolerable strain on the services that matter most to people by government.

Mugged by that reality, governments will have no choice but to confront what they avoid — not just do “more with less” but less altogether.

David McLaughlin is a former clerk of the executive council and cabinet secretary in the Manitoba government.