IF you have been wondering what meaning to attach to that irritating phrase the Carney Liberals use to describe themselves, “Canada’s New Government” – which was irritating enough when it was first employed, under Stephen Harper, when it was actually a new government – wonder no longer. As this Spring Economic Update makes abundantly clear, it means nothing whatever. Or next to nothing.
Well, I suppose it depends on whether you are looking at things in static or dynamic terms. So whereas the Trudeau government did all sorts of things that steadily made matters worse, fiscally and economically speaking, the all-new Carney government will do almost nothing to make them better.
This is, remember, the Carney government’s second crack at it. The first, last fall’s budget, was extravagantly hyped beforehand, but delivered very little. Tuesday’s update, by contrast, came with next to no advance hype, and delivered very little. So the government is at least managing expectations better than it was. But in substance it amounts to more of the same.
The basic issues in front of the government are, not coincidentally, also unchanged. They are 1) the deteriorating state of the country’s finances, and 2) the snail-like pace of economic growth, a problem that has been growing steadily worse for decades.
On the deficit and debt situation, things are if anything worse than before. The Trudeau government ran through a series of fiscal “guardrails,” later changed to “anchors,” each one more forgiving than the last. Balanced budgets, of course, are but a fond memory. So is the “declining debt-to-GDP ratio” that replaced them. Ditto for “deficits smaller than one per cent of GDP.”
The Carney government set even less exacting targets for itself. Now it’s a steadily declining deficit-to-GDP ratio, plus that mumbo-jumbo about achieving “day-to-day operating balance” (a concept nowhere defined), eventually, while continuing to borrow for capital spending (also undefined), more or less indefinitely.
But the deficit for fiscal 2026, at 2.1 per cent of GDP, was higher, proportionately, than it was in fiscal 2025, and is projected to remain at similarly elevated levels this year and next. What’s the fastest-growing government program? Interest on the debt, projected to cost, four years out, more than $80-billion, or 13 cents of every tax dollar. Four years ago it was just 6 cents.
The new government, like the old, cannot even be bothered to present the current figures in a meaningful fashion. The federa
The provinces’ net debts, collectively, are north of 30 per cent. The combined federal-provincial debt, according to a recent report from the C.D. Howe Institute, is at about 75 per cent of GDP today, on its way to 82 per cent by fiscal 2029.
On what basis, then, does the government continue to insist that Canada’s all-government net debt-to-GDP ratio is at just (checks notes) 10.2 per cent? By subtracting the assets held by the Canada Pension Plan and Quebec Pension Plan, funds that appear on neither the federal nor the provincial governments’ balance sheets – and, more important, are not available to either to pay off their debts.
The picture is even bleaker on the growth side. Yes, things could be worse. The tariff shock is wearing off. Inflation is contained. Interest rates are falling. But the government’s own long-term projection is for growth averaging 1.7 per cent after inflation. That’s a third as fast as we grew in the 1950s and 60s. It’s half as fast as in the 1970s and 80s.
Highlights from the spring economic update, including CPP contribution cuts and new sports funding
That’s a major contributor to high deficits. But high deficits also hurt growth, crowding out productive private investment. So do high tax rates and unnecessary regulation – especially the kind that protects cozy industrial oligopolies from competition, such as those that now stifle the telecoms, financial services and airline industries.
What, then, does “Canada’s New Government” propose to do about these? Sweeping, pro-investment tax reforms? Radical steps to open protected sectors to competition? No and no. It’s more of the same incremental noodling and state-directed wheel-spinning that got us here. Complacency on taxes, “sector strategies” for every industry under the sun, etc. etc. etc.
A “whole of government competition plan” sounds promising, until you discover that it’s just more hedge-trimming: a watery promise to “limit to the extent possible the potential negative impacts on competition that can, often inadvertently, stem from government policies.” I say, how frightfully stimulating.
Oh, and there’s the Canada Strong Fund, advertised as “Canada’s first sovereign wealth fund,” about which more on another occasion.
There’s no use being disappointed. By this stage, we should all be managing our own expectations. Canada’s New Government is no more interested in arresting our economic decline than Canada’s Old Government.
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