Ottawa to pay for new big-ticket spending with bigger deficits, economic growth: finance minister

The federal government plans to pay for its recent big-ticket spending through a combination of economic growth and deficit increases, Finance Minister François-Philippe Champagne said Monday.

Prior to officially kicking off the government’s pre-budget consultations this year, Champagne told reporters in Ottawa that the government is “investing” in the Canadian economy to ensure various new spending items can be paid for. He also repeated his argument from recent months that Canada has the strongest fiscal position in the G7, implying that increased deficit spending is affordable.

“I think Canadians can understand that we have a strong fiscal position, and we’re investing in the things that will generate growth to the country,” the finance minister said.

Champagne also cited the benefits of removing interprovincial free trade barriers and strategic defence procurement that improve innovation as ways to boost growth. “We’ll do that in a very smart way.”

Though the federal government has already removed the bulk of Ottawa’s barriers to interprovincial trade, the heavy lifting remains with the provinces and territories to remove their barriers, most of whom have been reluctant for decades to do so .

And while analysts agree that defence procurement can be done in a way to maximize benefit to the country that is making a major purchase, they say there is little chance of recouping close to the entire expenditure in the short term.

Economists also remain skeptical that long-term investments will produce short-term gains, and that high-cost projects will be paid for through any means other than increased borrowing.

Don Drummond, formerly TD Bank’s chief economist and before that a high-ranking official at the Department of Finance, has said that the government seems to be resting its projections on optimistic forecasts for economic growth and labour productivity.

With a range of threats on the horizon, such as rising American tariffs, Drummond said Canada could be making itself vulnerable, as was the case from the mid-1970s to the mid-1990s, when governments continued to assume that stronger growth was just around the corner.

While Monday may have been the official part of the pre-budget ritual, the process started unofficially many weeks ago as economists, industry and business groups, think tanks and others started gathering their budget wish lists and policy recommendations. Some submitted them to the parliamentary finance committee more than a month ago.

Champagne met Monday with business leaders and said Canadians can take part in the budget process until Sept. 8 through an online portal .

Prime Minister Mark Carney’s government has been trying to improve the Canadian economy’s long-term competitiveness and its ability to export beyond the United States, with a particular focus on boosting corporate investment. But hitting those goals will not be cheap.

And after the Liberal government amassing massive deficits in recent years, Champagne’s comments made no mention of cuts, suggesting that the government plans to double down on its emphasis of paying for its spending mostly from added debt.

Despite the addition of tens of billions of dollars of new spending spread out over the next six years, the spring update shaved the projected 2025–26 deficit down to about $66.9 billion from the $78.3 billion that had been projected in last fall’s budget. That drop was due largely to a fiscal windfall from higher oil prices.

While Ottawa has been amassing large piles of debt for more than half a century, it’s taken the habit to new levels over the last few years. The federal government has now accumulated $1.27 trillion in total debt, almost half of which has been added over the last five years.

Those figures do not include much of the government’s planned or announced spending for a wide range of expensive projects, including the announcement Monday of a builder for a new fleet of submarines, which are estimate to cost $80 billion. That added to the list of other big-ticket items that Ottawa has already promised:

• Infrastructure. The list of projects include critical minerals, transportation, and energy. That includes a new oil pipeline to the Pacific Coast from Alberta, upgrades to the Port of Vancouver and other transportation hubs, and a $60-$90-billion high-speed rail system between Toronto and Quebec City.

• Defence spending. The Carney government committed last year to hit NATO’s target that members spend at least two per cent of GDP on defence, and Ottawa hit that mark earlier this year after boosting military wages, investing in new hardware and moving the Canadian Coast Guard to the defence budget. Carney has also vowed to spend at least five per cent of the country’s GDP on defence by 2035, although that is expected to include investments in ports, highways and other infrastructure that can be classified as both civilian and military use.

• Affordability. Included are the Canada Groceries and Essentials Benefit, estimated to cost $12 billion over six years, and other cost-of-living subsidies.

• Housing. Ottawa has also unveiled new programs to try to add to the country’s housing stock at a time that many view as a crisis.

Although Champagne didn’t mention it Monday, the government has also tried to trim spending, although it will not be nearly enough to pay for the new bills. Last year’s budget proposed cutting the federal bureaucracy by about 40,000 jobs through attrition and targeted pink slips. But that only goes part of the way to undoing the dramatic 42 per cent increase of about 110,000 in public service employees between 2015 and 2025.

Some analysts worry that the federal government is heading for a steep fall as the national debt piles up.

Despite some very gloomy forecasts, the Canadian economy has so far held up relatively well since U.S. President Donald Trump started imposing new tariffs last year on key Canadian industrial sectors and many other countries. Canada has also been dealing with weak productivity, a sluggish jobs market, modest inflation hikes, and the effects of wars in Iran and Ukraine.

National Post

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