Unwinding Canada's Fiscal Mess Will Take Time and Sacrifice
Unwinding Canada's Fiscal Mess Will Take Time and Sacrifice
Post 36 | Fixing our finances is like fixing our health
A guy stands on the front lawn watching his inherited mansion burn. He’s ignored its basic upkeep for years, filled the place with firecrackers, doused it in kerosene and lit the match. But he doesn’t just impassively watch the fruits of his neglect and willful arson. Rather, he looks around and indignantly asks how in the heck this could be happening and who is responsible. Meanwhile he’s got a flamethrower in his hands giving the inferno extra help, then turns it on all his neighbours’ properties to ensure they suffer maximum damage. In this lunacy, he is assisted by a clueless lady who aided the destruction and now lectures neighbours about the fairness of it all.
And so went Justin Trudeau and Chrystia Freeland’s 2024 budget, pounding more spikes into Canada’s fiscal coffin including another $40B projected deficit, while spinning it as a fairness budget, accompanied by the inane catchphrase, “democracy is not inevitable”.
This article won’t detail the philosophical and practical ailments of another budget that overspends, bribes, overtaxes, over-regulates and kills productivity. If you wish to dig in, Scotiabank produced a thorough budget analysis.
Justin Trudeau has suddenly jolted awake to the many crises besetting our country – inflation, housing, affordability and immigration - as though they just happened, and by another’s hand. But he’s ready to further tax, borrow and spend us to salvation…from the epic mess of his own making. That his instincts and actions for how to address the issues are so off-base is no less angering for being so unsurprising.
Yet the very concept of crisis has been badly abused in recent years. Not everything can be deemed a crisis or we become overwhelmed, exhausted and apathetic. We simply have limited capacity to understand, triage and fix more than a few crisis level issues at once.
For the past nine years this government declared climate change, DEI, and indigenous reparations as the crises of our times and sucked up all the oxygen in their pursuit. They neglected the primary duties of running a country and have been blind to the fundamental issues that have now approached crisis levels. We are painfully reaping what their incompetence has sown.
With a debt of nearly $1.5 trillion and a servicing cost of *$51 billion next year, we need unprecedented growth to make a dent while tackling the basics of running a country. [* For context, this value is twice our annual defense budget ($22-$26B), about equal the total of all annual GST revenue ($50B), and about equal total federal health transfers to the provinces ($49B)]
Unfortunately, we have also experienced a woeful lack of growth and productivity as the Liberals have shifted money to government balance sheets and prioritized income redistribution over income generation, while drowning us in regulations and bureaucracy.
We need look no further for the drivers of our current affordability and debt woes, than their orgy of borrowing and spending with little revenue generation or real investments.
Fixing The Mess
Canada can eventually recover from this decade-long trainwreck, though there will be scars. It required more than twenty years after the first Trudeau drove our fiscal health, unity and foreign policy into the toilet. Trudeau the son has dug a much bigger hole.
Herein is the rub few wish to acknowledge – this will take a lot of time, a major dose of political will, and willingness for sacrifice from Canadians.
But how to even tackle something so out of control?
I’ll briefly torture a health metaphor to explore how this can happen under a new government.
Let’s say you want to get yourself in shape after gaining twenty pounds over ten years and suffer high blood pressure, blood sugar, insulin and lipids, mixed with fading energy and general malaise. A weekly Ozempic injection, along with a daily statin, ACE inhibitor, and a fistful of health supplements that promise health and wellness are tantalizing solutions. But this quick pharma fix comes with big costs, unintended downsides and a fraught future. And while it may require only three months to get you into those jeans last worn in 2005, your underlying metabolic health and future wellbeing may not be brighter despite your svelte form – not to mention the dispiriting rebound when you stop the drug cocktail without having fixed the basics.
The pragmatic approach is to start doing today the things for which your future self will be thankful. More specifically.
Stop doing most of the bad stuff - notably, ingesting excess and poor quality calories
Regularly do some good stuff – notably, eating real food and following a structured schedule of intentional exercise
Make these non-negotiable elements of your life
Assess and adjust over time based on how your body responds
Be consistent, incremental, patient and embrace it as a lifestyle rather than chasing the latest beach body workout or diet fad
Accept that it will take several years of consistency with a few bumps in the road, though it may not get you all the way back into your high school Jordache jeans
Returning to fiscal health will be no different.
Balance the budget annually while slowly chipping away at debt, no matter how insurmountable it seems
Focus on building innovation, entrepreneurial and production capacity so our economy has fuel for growth
Stop wasting tens of billions on income redistribution to the unappeasable and insatiable and be candid about its limited effect and declining returns
Stop sabotaging growth with excessive regulations and bureaucracy
Personal health and fiscal health require reasonable and consistent behaviour over the long run. Quick fixes will almost all fail – whether to address housing, affordability, inflation or productivity. They cost too much, dampen the free market, further balloon the bureaucracy and continue setting false expectations.
Take housing for example. Simply put, housing affordability will not significantly improve for years. Much as you won’t healthfully lose those excess 20 pounds in three months, you can’t properly fix an economic problem overnight that has been more than a decade in the making, driven by multiple structural causes. Putting ruthless rules on immigration must be a predicate to fixing the housing problem. But programs led, run and financed by government will have limited success, worsened by downstream negative impacts we can’t foresee. If solutions don’t feature free market development as opposed to government-driven edicts, it will fall like a house of cards.
The reality is that we have become entitled, indulged and unaccustomed to being told the truth, or being asked to make sacrifices. So a lack of candour that we will experience some pain and inconvenience while battling back to fiscal sanity will continue feeding the fantasy.
Javier Milieu of Argentina provides an inspirational example. He was brutally upfront about the chainsaw he’d take to waste, bureaucracy and corruption – and loudly honest about the pain Argentinians would endure in the near term. It won him a resounding majority and they are now in the midst of a massive fix after decades of government abuse - a herculean and messy task.
Likewise, Canadians need to be shocked into awareness, for those still asleep. More importantly, we must accept that sacrifice is not just for the other guy. Apparently almost everyone is now a hard working, middle class Canadian deserving of everything we ever want - leaving only a handful of wealthy individuals or corporate greed mongers to bear blame and shoulder the burden of more taxes. Except it’s mostly not true as the wealthier already pay on a progressive income tax scale up to 54%, small businesses drown in taxes, fees and regulations that make it increasingly undesirable to operate, and large corporations face countless hurdles that dissuade maintaining shop in Canada.
Prior posts have covered many examples of government waste and excessive spending, along with departments and programs to be culled - easily liberating tens of billions - so I won’t repeat them here. But if hard choices and tradeoffs are required, what are your priorities and what are you prepared to do without?
Single tier healthcare as a sacred cow? Free daycare? Pharmacare? Dentalcare? Free education for all? Subsidized food and government food marketing boards? Exorbitant OAS pumping out $81B annually to a majority who don’t truly need it? $31B annually in indigenous services plus tens of billions more in payments and a proposed $349B infrastructure gap yet lying ahead? $44B on battery plants to make a thimble full of difference against misdirected global carbon targets?
Ask Not…
The Conservatives have a unique opportunity to set a different tone - of tempered expectations and an appeal for sacrifice. I recognize these are both old-fashioned notions, but may resonate with many Canadians who realize they’ve been promised fairy tales that will never come true, evidenced by a nine-year track record of abysmal economic data. Common sense tells us we can’t have it all. So, perhaps we’re at a unique point in this country where a message of tough medicine plus civic duty will be welcomed for its honesty, as happened in Argentina.
Is it possible a JFK-like appeal could find a home in our battered souls ala, “Ask not what your country can do for you - but what you can do for your country”?
Meanwhile our growth and productivity must become the priority, rather than focusing on filling all the begging bowls from dwindling supplies. Post 22 offers six practical steps.
Pierre Poilievre has a careful line to tread as he promises a chicken in every pot, with affordability and houses for everyone. It simply isn’t possible, nor without pain along the way, nor without a major refocus on building capacity while trimming much fat, and slaughtering a few sacred cows.
None of this begins to redress the cultural, social, defense and foreign policy damages done to our country. These too will require candour, pragmatism and time to develop sensible policies and repeal the nonsense fed to Canadians the past years – about our history, place in the world and what we hold important.
Millions of Canadians still know what it means to build a plan, work diligently, live within their means, make sacrifices and trade offs and consistently execute day by day. They live decent lives albeit not always filled with unicorns and cotton candy, but we are miles away from the deprivations of merely two generations ago – a fact that all but the eldest among us often forget.
We need a government that does the unsexy hard work of whipping us back in shape, tackles the basics and doesn’t rush for quick fixes.
Meanwhile, we must temper our own expectations and not cry foul once we have an intelligible plan in place and the candy bowl is taken away.
Are you ready for that?
Stay tuned and stay pragmatic.
Another great piece. IMO, Pollievre and the conservatives need to pivot from simply criticizing Trudeau and using catch phrases to laying out a specific and clear message with concrete plans in a candid way. Whether I am ready or not really doesn’t matter … it is necessary and inevitable we will pay the piper … I’d prefer sooner than later for the sake of our kids and their future generations. Thanks for the great writing.