I am honoured to participate in the budget debate.
I think that the context of this budget is important. First of all, it was delayed for an unprecedented number of months and introduced in the fall, which will now be the new government's budget cycle. It was also preceded by a lot of rhetoric from the government about what kind of budget it would be, with commitments about making this a budget full of “generational investments”, saying that it would “swing for the fences”, that it would “define our next century” and that it would be “transformative”. That is the context in which this budget was hyped.
However, when we actually got the budget on November 4, it was anything but. It was not a budget like that of 1971, which introduced comprehensive tax reform that had been largely recommended by the Carter commission. It was not a budget like that of 1988, which collapsed 10 federal tax brackets into three and started the country on a transformative change to our economy. It was not like the budget of 1991, which took the difficult step of eliminating the 13.5% manufacturer sales tax and introducing a broader and lower value-added tax in the form of the GST. It was not the budget of 1996, introduced by then finance minister Paul Martin, which introduced the plan to balance the federal government's finances in 36 months.
This budget had none of the hallmarks of the budgets of those four important years.
Instead, this budget would do quite the opposite. It would continue us down the path of the last 10 years. It is another big spending, big government, big Liberal budget. In fact, this government's budget has weaker fiscal anchors than the previous Liberal government's.
The last Liberal budget had a fiscal anchor of deficits of less than 1% of GDP. This budget would double those deficits, averaging 2% of GDP in the coming years. The last Liberal budget had a fiscal anchor of a declining debt-to-GDP ratio. This budget would increase the debt to GDP.
It is clear that this government's fiscal anchor is weaker than the previous Liberal government's. The new fiscal anchor is some weird new invention that very few, if any, other G7 countries use. The new fiscal anchor is a balanced operating budget by 2029 and a declining deficit rather than debt-to-GDP ratio. By fiscal year 2029, the deficit will only be $58 billion. By then, the government projects that the interest on the debt will be $71 billion, chewing up 13¢ of every dollar, up from only six cents as recently as fiscal year 2022.
Last July, bond rating agency Fitch Ratings warned that a material rise in the debt-to-GDP ratio and a material rise in our deficit could lead to a credit downgrade. This budget would double deficits and lead to an ever-increasing debt-to-GDP ratio. As a result, here is what Fitch Ratings said several weeks ago after the budget was delivered:
Canada's...proposed budget, announced in Parliament on Nov. 4, underscores the erosion of the federal government’s finances, says Fitch Ratings. While Canada’s rating is broadly stable, persistent fiscal expansion and a rising debt burden have weakened its credit profile and could increase rating pressure over the medium term. This may be exacerbated by persistent economic underperformance caused by tariff risks and structural challenges, including low productivity.
In other words, the government's increased deficits and rising additions to the national debt have eroded the federal government's finances and weakened its credit profile. We are at particular risk because all of this could be exacerbated by additional tariffs and our ongoing low productivity.
We can all acknowledge that the tariffs levied by the U.S. administration are not within the control of government, but what is within the control of government is low productivity. The government has immense macroeconomic levers at its disposal to turn around this country's chronically low, if not declining, labour productivity. I would like to dwell on this for just a moment.
The deputy governor of the Bank of Canada called Canada's low productivity an “emergency”. She said, “it's time to break the glass.” Despite that warning over a year ago, the government failed to meet the moment and failed to introduce fundamental reforms to get the Canadian economy on track. A famous economist once said that the only long-run determinant of prosperity is productivity, and the government has absolutely failed to introduce fundamental reforms to meet the moment to get our productivity turned around.
A second point on the government's deficits and debt is that the government often touts its record on net debt, but that fails to take into account that Canada is the smallest of the G7 economies. It has the smallest currency of the G7 economies. We are not part of the eurozone. We are not the U.S. dollar, and we are not the U.K. pound. We are the smallest of the G7 currencies, and we are not a reserve currency like the U.S. dollar or the eurozone.
The government's rhetoric on net debt also fails to take into account a second important distinction from other G7 countries, which is that we are the most indebted subnational debt country in the G7. We have some of the highest levels of subnational debt in the OECD, which the federal government backstops.
I will remind the House that it was just over five years ago when a province hit the fiscal wall. It ran out of money. Now, that may not be remembered by many people, because it happened in March of 2020 when the global pandemic hit, but in March 2020, Newfoundland and Labrador tried to raise cash on debt capital markets to pay for nurses, doctors and teachers, and it could not. It did not have any money to meet payroll, and as a result, it went to the federal government and asked for an emergency transfer of cash to keep basic government operations going.
When we take into account subnational debt, and when we take into account that we are the smallest of the G7 currencies and not a global reserve currency, the government's record on debt does not look as good as it would have everyone believe.
I will finish by asking this: Where are the fundamental reforms that meet the moment? Where are the transformative reforms that are generational? Where is the competition reform? Where is the regulatory reform? Where is the tax reform?
Many had hoped, myself included, that the government was going to commit to that comprehensive tax reform. The Liberals have been promising fundamental tax reform since their first budget in 2016. Other governments have introduced fundamental tax reforms that transformed the economy, moved productivity and created prosperity and growth. I think of the budgets of 1971, of 1988, of 1991 and of 1996.
Instead of fundamental progrowth tax reform, regulatory reform and competition reform, we are getting a bunch of special loopholes and deductions for specially targeted sectors. It is creating more big government, more “big government knows best”, and more of the big programs and big sectoral focuses that will do nothing to turn this economy around or address the fundamental economic crisis we are facing in this country.