Prime Minister Mark Carney's inaugural budget faces a critical vote in the House of Commons on Monday, but regardless of the outcome, financial analysts suggest it will provide little relief to Canadians struggling with affordability challenges.
A Decade of Economic Decline
The budget represents Carney's attempt to address what economists describe as ten years of economic mismanagement under former Prime Minister Justin Trudeau. The fundamental problem, according to experts, was a government focus on income redistribution rather than economic growth.
Ironically, Trudeau himself highlighted economic growth as a critical issue during the 2015 election campaign that brought him to power. He accused then-Prime Minister Stephen Harper's government of having the worst economic growth record since R.B. Bennett during the Great Depression.
The reality, however, is that under Trudeau's leadership, Canada's economic performance deteriorated further. During the Harper era, Canada's economy measured by real GDP per capita grew at an annual rate of 0.5%. Under Trudeau, that figure dropped to just 0.3%.
Canada's Global Standing Slips
University of Calgary economist Trevor Tombe recently published analysis comparing GDP per capita growth among the 38 developed nations in the Organization for Economic Co-operation and Development. The findings revealed Canada's dismal international standing.
During the Trudeau years, Canada achieved only 1.4% growth, placing it second lowest among OECD countries. Only Luxembourg performed worse with negative 0.9% growth. By comparison, average growth across all OECD nations was 13.6%, while G7 countries averaged 12.6% growth.
The gap with the United States has become particularly concerning. According to World Bank figures, U.S. GDP per capita reached $85,809.90 last year, while Canada stood at just $54,282.60 in constant U.S. dollars. This represents a 58% higher economic output per person in the United States compared to Canada.
The Productivity Crisis
At the heart of Canada's economic struggles lies a persistent productivity problem. This doesn't indicate lazy workers, but rather that Canadian employees lack access to the education, training and technologies needed to work more efficiently due to insufficient business investment and innovation.
The Trudeau government acknowledged this critical weakness in their 2022 budget. Then-Finance Minister Chrystia Freeland described low productivity and innovation as the Achilles heel of the Canadian economy. Her budget warned that most Canadian businesses hadn't invested at the same rate as their U.S. counterparts.
Freeland's assessment proved prophetic: she noted that unless this pattern changed, the OECD projected Canada would have the lowest per-capita GDP growth among its members from 2020 to 2060.
Carney's Investment Solution
This is the challenging economic landscape that Prime Minister Carney inherited. His proposed solution, outlined in his first budget, involves long-term use of taxpayer money to stimulate additional private and public sector investment in Canada as a method to boost productivity.
The budget outlines an ambitious plan: $280 billion in government capital investments and incentives over five years, intended to mobilize more than $1 trillion in total investment from public, private, and institutional partners. The government claims these investments will drive job creation, faster growth, and stronger revenues to sustain social programs.
However, critics note that using taxpayer money to subsidize private and public sector investment during tough economic times is neither new nor transformative, despite the budget's claims. This approach traditionally falls under capital spending.
Expert Skepticism
Interim parliamentary budget officer Jason Jacques has raised concerns about the government's broad definition of what qualifies as capital spending. His analysis suggests the budget will fail to meet its projections on deficit reduction, lowering the debt-to-GDP ratio, and balancing the federal operating deficit within three years.
William Robson, president and CEO of the C.D. Howe Institute, added further caution, noting that optimistic economic projections built into the budget's later years make disappointment likely. He specifically warned that the federal government's high expenses and excessive borrowing are squeezing the private investment needed to make the economy grow.
This creates a concerning scenario where the government's policies may be working against each other, undermining the very economic growth Carney's budget aims to achieve.
