Prime Minister Mark Carney’s so-called Canada Strong Fund was rightly met with public skepticism when the federal government first announced the initiative.
The feds’ plan, according to Carney, is to borrow $25 billion to create a new sovereign wealth fund, modelled on Norway’s oil fund.
But here’s the problem: Carney plans to establish this fund on borrowed cash. Successful sovereign wealth funds are built on surplus cash, with governments investing money for future generations instead of spending it. In this case, Carney is planning to borrow money, and pay interest on that borrowed money, for the sake of investing it.
Any sound financial planner would tell you that borrowing money to invest it is a risky proposition. But that’s precisely what Carney plans to do, as the federal government is currently running a deficit in excess of $60 billion and is in no position to actually pay for a $25-billion investment in a new sovereign wealth fund.
Carney repeatedly pointed to Norway’s success in establishing and building a sovereign wealth fund over the past number of decades as evidence that his plan made sense. But here’s the thing: Norway banks excess oil revenue, invests it abroad and at arm’s length, and puts a hard cap on how much money the government can withdraw from the fund. Carney’s fund, by contrast, will be established on borrowed money, will be invested at home in a politicized fashion, and has no real constraints on how much cash can be withdrawn.
As the Montreal Economic Institute puts it, “an institution that borrows money to channel into government priorities amounts to a state lending bank wearing the branding of a wealth fund.”
Polls have shown that Canadians are rightly skeptical of Carney’s plans. In a poll conducted by Ipsos on behalf of the MEI, 58 per cent of respondents said they opposed Carney’s plan to create a sovereign wealth fund on borrowed cash, with just 20 per cent in support.
The MEI argues that Canadians’ skepticism is warranted, and Canadians need look no further than to the United Kingdom and the failures of the Starmer government to see why.
Soon after taking office, the Starmer government, under the leadership of former chancellor Rachel Reeves, created a new National Wealth Fund of 7.3 billion pounds. Like Carney’s plan, this was entirely done through borrowed cash. Carney, at the time, was an advisor to the Starmer government and recommended creating such a fund. In other words, this isn’t Carney’s first rodeo.
The MEI notes that the National Wealth Fund, thus far, has been nothing short of a failure, with significant early losses and poor income ratios. Any sound sovereign wealth fund needs strong governance, withdrawal discipline, and clear rules that separate the fund from politicization. The U.K. didn’t follow that path, and Canada, based on the plans outlined by the Carney government, doesn’t plan to, either.
Canadians don’t need the government to borrow more money, create a fund that no one asked for, and direct those monies toward initiatives that benefit the government politically rather than ensuring Canadians get the most bang for their buck.
Taxpayers must call on the Carney government to learn from the U.K.’s experience, scrap its plans to create the Canada Strong Fund, and focus on eliminating the budget deficit before even thinking about establishing a sovereign wealth fund going forward.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center. He previously served as the Ontario Director at the Canadian Taxpayers Federation and a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.
