Despite claims that “Canada’s new government” is being run by prudent fiscal managers, Ottawa still has a spending problem. In many ways, the spring economic update is proving something the Conservatives have been saying for months and most Canadians were not believing.
Mark Carney’s government is a lot like Justin Trudeau’s government, and that includes their interventionist economic view and out-of-control spending.
Deficit Down, But Still Higher Than Past Projections
Many of the headlines after the spring update focused on the fact that it showed Carney’s deficit being $11.4 billion less than planned. Compared to last November’s budget, when they predicted a deficit of $78.3 billion for the fiscal year that ended on March 31, coming in at $66.9 billion is preferable. However, as recently as December 2024, the last fall economic statement for the Trudeau government, this same deficit had been projected to be $42.2 billion. So Carney’s lower deficit is still higher than past projections — not as bad as feared, but still higher.
Canada’s Growth Remains Sluggish
That’s the good news. The bad news is that our economy will continue to grow at a slow pace going forward. The government wants you to believe this is all about U.S. President Donald Trump and his tariffs. While that is a useful political narrative, it’s not based on reality; we’ve had slow growth for years, and the government isn’t acting to change that.
The fiscal update boasts that according to the International Monetary Fund’s World Economic Outlook from earlier this month, Canada will have the second fastest growing economy in the G7. That sounds good, but the problem is that we’re still only projected to grow the economy by 1.5% this year, which is second to the U.S. at 2.3% growth. Throughout the 1960s, Canada’s economy grew at rates of between 3% to 7% a year. In the 1970s, it was 3% to 6%, while throughout the 1980s and 1990s it was still at least double what we’re facing now. Today, we get an anemic growth forecast and the government tells us we’ve never had it so good.
Time for Bold Tax Reform
Where is the plan to reform the tax system to make Canada more competitive? It’s true that on new investment, Canada is competitive with one of the lowest tax rates on new investment. Where we need to change is on the overall federal-provincial corporate tax rate, which currently sits at 26.5%. That’s slightly lower than the G7 average, but above the Organization for Economic Co-operation and Development average. Lowering that rate would give Canada a competitive advantage at a time when we could really use one, but there were no major tax-reform measures in this fiscal update nor were there any in last November’s budget.
The C.D. Howe Institute has advocated for what they call “big bang” tax reform that would see drastic reductions for both corporate and personal income tax rates. Their recent report called for taking the federal corporate tax rate down to 10% from the current 15%, but they also called for widening the tax base to give a tax cut to companies without reducing in any substantial way the amount of revenue the government takes in. On the personal side, they advocate for collapsing the current five tax rates down to three with the top rate of 26% on income over $180,000 rather than the current system with rates as high as 33% federally.
Bold Thinking Needed, Not More of the Same
That kind of bold thinking, the kind of thinking we should be seeing from a government trying to turn around an economy, is sorely missing from this fiscal update. What we have is a government pushing the same kind of policies that have facilitated our weak growth over the past several years. The sovereign wealth fund will not only be built with borrowed money, making it a sovereign debt fund, but its mission will be very similar to the Canada Infrastructure Bank, the Canada Growth Fund, the Strategic Innovation Fund and other government investment vehicles that haven’t delivered as promised.
Carney claims he’s running a new government, but neither his ideas nor his actions would show that to be the case. Canada needs and deserves better.
