Budget Watchdog Raises Concerns About Federal Spending
May 06, 2021 at 08:26 AM EDT
Budget Watchdog Raises Concerns About Federal Spending Canada’s budget watchdog is again taking issue with Prime Minister Justin Trudeau’s spending during the global pandemic. In its latest report, the Parliamentary Budget Officer (PBO) has warned that the federal government’s fiscal road map could reduce Canada’s future spending capacity by leaving debt at elevated levels for decades to come. Specifically, the PBO says Ottawa’s current spending would see Canada’s ratio of debt-to-gross domestic product remain higher that it was before the pandemic until the year 2055. Federal Finance Minister Chrystia Freeland’s budget forecasts debt-to-GDP will peak at 51.2%, then fall to 49.2% within five years. Before the pandemic, Canada’s debt-to-GDP ratio stood at 31%. The federal budget, Canada’s first in more than two years, outlines a strategy to boost the country’s growth coming out of the pandemic. But Freeland’s budget may well become a campaign platform as Trudeau is expected to call a national election later this year. The PBO also warned that the budget estimates "overstate the impact" of stimulus spending on growth over the next three years, stating that $69.2 billion in stimulus for the 2021-22 fiscal year will boost real Gross Domestic Product (GDP) growth by only about 1% in 2022-23 and 2023-24. While Minister Freeland argues that the mounting debt won’t damage Canada’s reputation as a fiscal stalwart, criticism has come from many prominent people. Mark Carney, the former governor of both the Bank of England and Bank of Canada, described the Liberal government’s spending plan as a "hybrid budget." He added that it would take more than one budget to fully transition the economy to a more sustainable path. David Dodge, another former Bank of Canada Governor, has criticized the lack of growth-focused initiatives in the budget. He argued that only $25 billion of the more than $100 billion earmarked for new spending actually increases public and private investments. He expects the rest of the spending to increase consumption.