Finance Minister Chrystia Freeland. Photo credit: The Canadian Press/Adrian Wyld
In an open letter to Finance Minister Chrystia Freeland this week, the Business Council of Canada took the extraordinary step to make a public plea to the federal government to resist making any new spending promises or dole out additional funding in the fall economic update, which is expected in the coming weeks.
The Council also suggested that the finance minister takes the occasion of her fall statement to announce a fiscal anchor that would serve to manage the increases in interest payments required to service Canada’s bloated national debt.
Goldy Hyder, Council president and CEO wrote: “With long-term interest rates at the highest they have been in years, it is irresponsible to suggest that economic growth will be higher than interest rates for years to come. Governments can no longer run permanent large deficits without fear. The era of low interest is no longer with us, and that is a reality the government must address.”
The Council also offered its advice for formulating a responsible fiscal anchor tied to the country’s debt servicing costs. To instill confidence in the financial markets, the government should maintain a debt servicing ratio at 10 per cent or less of its revenue. This figure is perhaps a stretch for the government as the Parliamentary Budget Office (PBO) has recently reported the government’s debt service ratio will rise to 12 per cent this current 2023-24 fiscal year.
Hyder punctuated the Council’s letter to Freeland with this lucid observation: “More deficit-financed spending at higher interest rates will eventually and inevitably lead to levels of indebtedness that will force future governments to cut spending and raise taxes. It will lead to a weakened economy with considerable uncertainty for businesses looking to invest, hire and grow in Canada. It will also put in jeopardy the social programs Canadians value. This is precisely what we must avoid.”
On a related note, the PBO forecasts that, given the government’s current spending plans and taking into account the higher interest rates, this fiscal year’s federal deficit will balloon to over $46 billion, which is $6 billion more than Freeland’s stated in her 2023 budget. The PBO warns that the government’s spending, combined with high interest charges and a sluggish economy is fostering “uncertainty surrounding our economic and fiscal outlook.”
This warning echoes recent parliamentary committee testimony by former Bank of Canada governor David Dodge who was critical of the government’s spending sprees. Dodge said, “Politically difficult as it may be, over the next few years budgets are going to need to be roughly balanced… The burden of past debt will increase year after year. Governments cannot borrow their way out of these difficult choices.”
So, there is little to no room left for the government to spend more or increase deficit spending. Canada’s debt levels have risen to record highs through the pandemic years. Based on data from CEIC, the World Bank and this country’s banks, the household debt-to-GDP ratio stands at 102 per cent, which indicates that Canadians owe more than the country produces. Canada’s collective household debt as a percentage GDP is now about $116,000 for each working-age Canadian.
The debt sinkhole that Canadians now find themselves buried in will require us in the coming years to pay more in taxes and/or expect less government services and programs. Franco Terrazzano, Federal Director of the Canadian Taxpayers Federation, underscored this point in a recent media statement: “The Trudeau government continues to mismanage our finances and that means more money wasted on interest charges, higher cost of living and more debt that Canadians’ kids and grandkids will have to pay back.”
“Interest charges on the government’s credit card will cost taxpayers almost $4 billion every single month. That’s billions of dollars every month that can’t go to fixing potholes or lowering taxes because it’s going to the bond fund managers on Bay Street,” observes Terrazzano.
This is a distressing thought, especially when so many Canadians are feeling overwhelmed about their current financial situation.
A report released this week from MNP LTD reveals one in two Canadians (51 per cent) are $200 or less away from not being able to complete their financial obligations. Canadians are very pessimistic about their financial situation: 25 per cent indicated their finances are “much worse” than a year ago and 16 per cent of respondents expect their debt will further worsen in five years.
Grant Bazian, president of MNP LTD, commented, “There is no mystery as to what is causing Canadians’ bleak debt outlook: it’s getting increasingly difficult to make ends meet. Facing a combination of rising debt carrying costs, living expenses and concern over the potential for continued interest rate and price hikes, many Canadians are stretched uncomfortably close to broke.”
This bleak sentiment was validated with two separate reports on consumer spending released through the week. An RBC report shows spending on essential items climbed 10 per cent year-over-year, reflecting inflationary factors, while discretionary spending such as eating out is trending notably downward.
A Deloitte Canada survey found the average amount Canadians are planning to spend on gifts and festivities over the holidays this year has plummeted to $1,347. That figure is down 11 per cent over last year and 25 per cent less than Canadians forecasted they would spend in the pre-pandemic year of 2019. Roughly two-thirds of respondents to the Deloitte survey said they are concerned about a recession, and more than half are worrying about upcoming hikes to their rent or mortgage payments.
Which brings us back to the Business Council of Canada’s sage advice for the finance minister (to paraphrase): “please Chrystia Freeland do not spend any more, and come up with a plan to manage that debt of ours.”
One final thought relating to this scribe’s long held prediction. Consider this. Perhaps this fall financial statement will be Chrystia Freeland’s swan song as finance minister. If PM Justin Trudeau repeats his father’s walk in the snow on February 29th – as I believe he will – by the time the Liberals 2024 Budget is to be delivered, Freeland will be either the country’s interim PM or she will be in the race for the brass ring. (Either way, that is a taxing thought.)
Chris George is an advocate, government relations advisor, and writer/copy editor. As president of a public relations firm established in 1994, Chris provides discreet counsel, tactical advice and management skills to CEOs/Presidents, Boards of Directors and senior executive teams in executing public and government relations campaigns and managing issues. Prior to this PR/GR career, Chris spent seven years on Parliament Hill on staffs of Cabinet Ministers and MPs. He has served in senior campaign positions for electoral and advocacy campaigns at every level of government. Today, Chris resides in Almonte, Ontario where he and his wife manage www.cgacommunications.com. Contact Chris at chrisg.george@gmail.com.
