The pandemic spread a frenzy of spending among governments across Canada over the past year and a half.
And the federal election campaign that played out during COVID’s fourth wave last month did nothing to break that trend.
“It was a spending competition, this election,” says Burkard Eberlein, a public policy expert at York University’s Schulich School of Business. “All parties, including the Conservatives, made pretty aggressive commitments that show up on the sheets.”
Having already put the country some $ 500 billion in hock from COVID-related expenditures, the winning Liberals have promised to add untold billions more to the national debt with subsidized child care, climate change policy, a vaccine passport, health care hiring and other pledged programs.
What will that added fiscal burden mean for the Canadian economy and taxpayer in the coming years? The experts are cautiously optimistic — while the cost of the proposed new programs will be high, more green spending and subsidized child care could also be a big boon for the economy, they say.
“We were in fact working through our national (economic) forecast during the election,” says Pedro Antunes, chief economist at the Conference Board of Canada. “And we were a little bit concerned (that) we’d have to go back and open it up to make some adjustments following the results.”
But none were needed, he says.
“The truth was we saw a status quo going forward,” says Antunes, whose forecast will be published later this month. “I don’t see a major change from just the election results in terms of the implications on the economy.”
Antunes says that forecast will show a downward trend in the economy, but that the drop was based on nonelection issues like global supply chain problems, falling auto exports and the continuing pandemic.
Peter Dungan, a top economic forecaster at the University of Toronto agrees with Antunes’ assessment.
“We have changed our forecast recently, but that was because of new data surprises and really nothing to do with the election,” Dungan, director of the policy and economic analysis program at the U of T’s Rotman School of Management, said in an email.
“I think it depends on which promises the Liberals choose to focus on,” says Peggy Nash, a senior adviser at Ryerson University.
“Look at child care, they have been campaigning on child care for 30 years,” Nash, a former NDP MP and finance critic says in referring to the latest Liberal program, which would offer $ 10-a-day spaces for Canadian families.
But Nash says that even if such an expensive program were to materialize, it would end up enriching the country’s economy.
“That could be a big cost item,” says Nash, who is chair of the advisory committee for the soon to be renamed university’s Centre for Labour Management Relations.
“However as we know, and certainly business is onside with this, 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 would be a long-term boon to the economy.
She also says that a proposed 3 per cent tax surcharge on the country’s big banks and insurers to help pay for the programs would do no harm to most middle and working class Canadians, who would rightfully balk at paying extra themselves.
“I think a lot of people, especially working people, made huge sacrifices and are still making sacrifices during the pandemic,” Nash says. “I don’t think there would be much tolerance for a tax increase right now for the average person.”
York’s Eberlein is more enthusiastic about some promised programs than others, based on their likelihood to prompt inflation.
He says, for example, that the Liberal pledge to green the economy in service of climate change prevention will help enrich the country without the inflationary consequences that the free-spending dollars of continuing income support programs might have.
“If you say we’ll green the economy, get away from fossil fuels, all those things, if it’s capital investment it’s of lesser concern than if it goes into (inflation causing) consumption,” he says.
Green spending — in projects such as electric cars, wind and solar power projects — targets money in noninflationary ways, Eberlein says.
“When is inflation dangerous? It’s when there’s too much money around not knowing where to go,” he says. “Whereas if you make a capital investment it’s not free floating money that’s sitting in my pocket and I can go around and drive up the prices of whatever it is I want to buy.”
But Eberlein too agrees that the election will not have a major impact on the general direction of the country’s economic prospects.
“Is it going to change the trajectory of the 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 that like many top private companies, Canada is a far more indebted entity since the pandemic. And he acknowledges that the election platforms of each party would have made that “leveraged” position larger.
“But I think it’s how the money is spent that determines whether or not it’s going to be a drag or an accelerant,” says Kamstra, a professor of finance at the Schulich school.
Kamstra says the country’s debt — which will increase gradually over years as election promises materialize — is comparable to that held by large private companies like computer behemoth IBM.
“IBM’s debt is about comparable to its total revenue and Canada’s debt right now is comparable to our GDP or a little less,” he says. “So I think we’re leveraged like a lot of companies are and leverage is a good thing when it’s used to build the company or the country and leverage is a very, very bad thing when it’s used to support the payment of previous debt and other non productive spending.”
But most of what Kamstra sees in the Liberals platform, he says, is “pretty sensible” spending.
Expanded health care, affordable housing plans, green infrastructure — even reconciliation if done properly — could all be put into the category of good debt spending, he says.
Rotman’s Walid Hejazi says promised election spending on top of the pandemic debt has not prompted the lowering of Canada’s credit rating by any agency, including DBRS Morningstar which recently kept the country’s AAA score intact, a positive assessment.
“I think the (economic) trajectory is, for the most part, relatively unchanged (by the election),” says Hejazi, an associate professor of economic analysis and policy at the school. “As a result of the election itself, nothing really changed and in fact Trudeau has been given a mandate … to continue doing what he was doing.”
Hejazi does say the proposal to increase taxes on the big banks — who raked in record profits during the pandemic — is fair because government relief programs that propped up their clients 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 rich institutions will not solve Canada’s trillion dollar debt problem, especially if interest rates rise in coming years, Hejazi says.
And with high spending likely to continue for the next several years and little appetite or room for higher taxes, the only way to conquer the debt is to grow the economy, he says.
And one way to do this, Hejazi says, is by increasing labour participation rates — especially among women — through more accessible daycare programs.
“Without question enabling or empowering women to be more active in the labour market is incredible,” he says. “And national child care is a great example (of how you can do this). That’s a no-brainer.”