When Canadians think of austerity, many will recall the former Harper government’s attempts to weather a post-recession storm and rein in spending with the introduction of their Deficit Reduction Action Plan (DRAP).
In the wake of the global financial crisis that crippled economies worldwide, the Conservative government had to move quickly. Fresh off an election victory that turned their minority into a majority, Harper and his cabinet shifted from the stimulus spending they employed to keep the Canadian economy afloat and protect vulnerable industries like the automotive sector, to a focus on cutting federal expenditures and tackling the debt.
The plan to get the books back to black required targeted cuts to the public service, reducing red tape and streamlining government operations, and conducting a government-wide review of spending to identify savings. DRAP worked, but not without dealing some political blows to the governing party at the time.
Well-funded public sector unions, along with the then-opposition NDP, launched a relentless campaign against the Harper government cuts. While austerity was not the central issue in the following election, it created an opening for a resurgent Liberal Party to capitalize on a promise to reject spending restraint in favour of large-scale investments aimed at driving economic growth. That gamble, part of a broader suite of campaign commitments, helped secure their 2015 victory.
Ten years later, austerity is once again in vogue. The Carney government is sending strong signals that the federal budget, which is expected to drop in a matter of weeks, will circle the square of implementing government spending cuts with targeted investments to boost the Canadian economy at a time when many sectors have been left reeling as a result of Trump-era tariffs.
With affordability once again front and centre in the minds of Canadians, new austerity measures may do little to quell concerns related to household budgets, particularly heading into the hectic holiday shopping season. While the move by the Carney government is long overdue, the sticker shock of the deficit, paired with few short-term measures for middle-class households could ensure the political honeymoon of the last five months comes to an end.
One area that is all but guaranteed to see some of the limited funding available is defence spending. Details on how Prime Minister Mark Carney expects to meet his goals to strengthen Canada’s position on the world stage are expected to roll out in short order, along with a $9 billion price tag. How this is messaged and reconciled with short to medium-term spending goals will be a delicate balancing act in light of anticipated public service cuts and reductions to departmental budgets.
Carney entered office fully aware of the existential threat posed by U.S. President Donald Trump and his heavy-handed use of tariffs. What he has yet to face, however, is the political blowback that inevitably accompanies an austerity budget. The consequences may not erupt as a full-blown crisis overnight, but there is little doubt the Liberal government will face political pain as it seeks to course correct after a decade of deficit spending.
Josie Sabatino is a Senior Consultant at Summa Strategies, focused on providing strategic insight and helping clients meet their objectives in an ever changing and complex political and regulatory environment. Prior to joining Summa, Josie spent nearly a decade in political communications and most recently served as the Director of Communications to the Hon. Erin O’Toole, former Leader of the Official Opposition.
