Op-Eds

As the Liberal government in Ottawa starts ramping up for the big celebrations October 19th of Prime Minister Justin Trudeau’s 20 years in power, fiscal storm clouds loom. A gradual but modest rise in interest rates, the continuation of a decade and a half of slow economic growth and several supply and demand shocks have laid bare the unsustainability of Canada’s public finances. Now, as autumn 2035 approaches, we face what is clearly turning into a fiscal crisis.

What got us here? The easy answer is the economic and fiscal impact of the COVID-19 pandemic that wreaked havoc on the economy and public finances in 2020 and 2021. The federal and many provincial governments saw the ratio of their net debt to their GDP jump 20…

Surging transfer payments financed by unprecedented borrowing have dominated the fiscal headlines since the spring of 2020. By contrast, the sharp run-up in Ottawa’s operating costs since 2014 has hardly registered. As the pandemic recedes and its fiscal aftermath comes to dominate policy discussions, Ottawa’s burgeoning overhead — mainly due to compensation — will come under close scrutiny. As in the proverb, after seven fat years, seven lean years loom.

If not for the distraction of the pandemic, which allowed the government to get away with not presenting a budget in 2020, Ottawa’s surging operating and employment costs would have attracted attention by now. In the 2014/15 fiscal year, federal expenses other than transfer…

Governments in the advanced economies mounted a massive fiscal response to the COVID crisis. They ramped up spending, mainly on income supports to individuals and businesses, and financed it by borrowing. Central banks also responded on a massive scale. They dropped their policy interest rates close to zero, and their balance sheets ballooned as they bought securities — mainly government debt — and flooded the global financial system with liquidity.

These responses undoubtedly cushioned the COVID blow to our economies. But, more than a year later, especially in the United States and Canada, both fiscal and monetary policy are still in overdrive. It is reasonable to worry that they are going too far.

On the fiscal side, the…

In its budget statement, the federal government announced that it would introduce a special excise levy on vaping products in 2022. At the present time no such levy is imposed, even though several provincial governments have introduced levies on each millilitre sold (e.g. Nova Scotia) or special sales taxes (e.g. British Columbia).

Tobacco and nicotine are viewed by society as sin goods. We lump them loosely with alcohol, cannabis, gambling and so forth. We call them sin goods because they can cause damage to our health if consumed to excess and sometimes if consumed just in small amounts.

Vaping products form the largest component of what we now call alternative nicotine delivery systems (AND systems). Other AND systems…

In the C.D. Howe Institute’s shadow federal budget, released 12 days before Finance Minister Chrystia Freeland delivered the real thing this week, I and my coauthors, Don Drummond and Alexandre Laurin, recommended raising the GST back to seven per cent in 2023. This idea got attention — mostly about how a two-point hike in the GST was too politically painful to be realistic. Over time, though, even in the big-borrowing, low-interest-rate future described in the budget, every dollar spent on programs requires close to 100 cents of revenue. Painful or not, the permanently bigger federal government that this budget anticipates will require Canadians to pay for it.

Since the pandemic struck, the federal government has…