The pandemic has sparked a spending frenzy among governments across Canada over the past year and a half.
And the federal election campaign played out during the fourth wave of COVID last month did nothing to break that trend.
“It was a spending contest, this election,” says Burkard Eberlein, a public policy expert at York University’s Schulich School of Business. “All parties, including the Conservatives, made very aggressive commitments that appear on the sheets.”
After already slashing nearly $500 billion to the country from COVID-related spending, the winning liberals added untold national debt with subsidized child care, climate change policy, a vaccine passport, health care recruiting and other pledged programs. Promised to add billions. .
What will that additional fiscal burden mean for Canada’s economy and taxpayers in the coming years? Experts are cautiously optimistic – while the proposed new programs will cost more, more green spending and subsidized child care could also be a huge boon to the economy, he says.
“We were really working through our national (economic) forecast during the election,” says Pedro Antunes, chief economist for the Conference Board of Canada. “And we were a little worried (that) we would have to go back and open it up to make some adjustments after the results.”
But none was needed, he says.
“The truth was that we saw the status quo moving forward,” says Antunes, whose forecast will be published later this month. “I don’t see a big change from just the election results in terms of the impact on the economy.”
Antunes said the forecast would show a declining trend in the economy, but that the fall was based on non-election issues such as global supply chain problems, declining auto exports and the ongoing pandemic.
Peter Dungan, a top economic forecaster at the University of Toronto, agrees with Antunes’ assessment.
Dungan, director of the policy and economic analysis program at U of T’s Rotman School of Management, said in an email, “We recently changed our forecast, but this new data was a surprise and really had nothing to do with the election.” ” .
“I think it depends on what promises the liberals choose to focus on,” says Peggy Nash, a senior advisor at Ryerson University.
Nash, a former NDP MP and finance critic, referred to the latest Liberal program, saying, “Look at child care, they’ve been campaigning on child care for 30 years.”
But Nash says that even if such a costly program were implemented, it would enrich the country’s economy.
“It could be a huge cost item,” says Nash, who is chair of the advisory committee to soon rename the university’s Center for Labor Management Relations.
“However, as we know, and of course business with it, child care is an economic generator,” she says.
By allowing more parents, especially mothers, to re-enter the workforce, Nash says readily available child care will be a long-term boon to the economy.
She also says the proposed 3 percent tax surcharge on the country’s big banks and insurance companies to help pay for the programs will do no harm to most middle and working-class Canadians, who find themselves paying extra. hesitate.
“I think a lot of people, especially working people, have made huge sacrifices and are still making sacrifices during the pandemic,” Nash says. “I don’t think there will be much tolerance for a tax increase for the average person right now.”
Eberlein of York is more upbeat about some promised programs than others based on their potential to fuel inflation.
He says, for example, that a generous pledge to green the economy in the service of climate change prevention would help the country prosper without the consequences of inflation, which can be the free spending dollars of sustained income support programs. .
“If you say we’ll go green the economy, move away from fossil fuels, all those things, if it’s capital investment it’s less of a concern if it goes into (inflation-causing) consumption. ,” he says.
Green spending — in projects like electric cars, wind and solar power projects — targets money in non-inflationary ways, Eberlein says.
“When is inflation dangerous? This is when there is too much money, not knowing where to go,” he says. “Whereas if you make a capital investment it is not free floating money sitting in my pocket And I can raise the prices of whatever I want to buy.”
But Eberlein also agrees that the election will not have a major impact on the general direction of the country’s economic prospects.
“Is this going to change the trajectory of recovery? I don’t think so,” he says. “Even with a conservative government it wasn’t going to change that much.”
York economist Mark Kamstra says Canada, like many top private companies, is a far more indebted entity than it has been since the pandemic. And he acknowledges that each party’s electoral platforms may have exacerbated that “leveraged” position.
“But I think it’s how the money is spent that determines whether it’s going to be a drag or an accelerant,” says Kamstra, a professor of finance at the Schulich School.
Kamastra says the country’s debt – which will gradually increase over the years as election promises are fulfilled – is on par with large private companies such as computer giant IBM.
“IBM’s debt is equal to its total revenue and Canada’s debt is now equal to or slightly less than our GDP,” he says. “So I think we are leveraged like a lot of companies and leverage is a good thing when it is used to build a company or a country and leverage is a very bad thing when it is used to pay off past debt. and other non-productive expenses.”
But what Kamastra sees in the liberal platform, it says, is “fairly sensible” spending.
Expanded health care, affordable housing schemes, green infrastructure — even if properly reconciled — can all be classified as good debt spending, he says.
Rotman’s Walid Hejazi says the promise of election spending on top of the pandemic debt has not prompted any agency to downgrade Canada’s credit rating, including DBRS Morningstar, which recently released the country’s AAA score. has been retained in positive evaluation.
“I think the (economic) trajectory is, for the most part, relatively unchanged (by election),” says Hejazi, an associate professor of economic analysis and policy at the school. “As a result of the election, nothing really changed and Trudeau has in fact been given a mandate … to continue what he was doing.”
Hejazi says the proposal to raise taxes on big banks – which made record profits during the pandemic – is justified because government relief programs to prop up their customers during the pandemic helped bolster their bottom lines .
“So I think it’s fair that they bear some of the burden,” he says.
But such increased taxes on wealthy institutions will not solve Canada’s trillion-dollar debt problem, especially if interest rates rise in the coming years, Hejazi says.
And with high spending likely to continue for the next several years and room for low appetite or high taxes, the only way to conquer debt is to grow the economy, he says.
And one way to do that, Hejazi says, is to increase labor participation rates — particularly among women — through more accessible daycare programs.
“Without question enabling or empowering women to be more active in the labor market is incredible,” he says. “And National Child Care is a great example (how can you do that). It’s a no-brainer.”