Canada’s Economic Woes: A Look at the Deficit and Debt
The Canadian economy is facing significant challenges, including a tariff war with the U.S. that is affecting several key sectors. This has led to concerns about the country’s financial health, including a major revenue drop and a potential record-setting deficit.
The Spending Plan
The recently released federal government spending plan shows an increase of 8.4% in spending for the 2025-26 fiscal year, totaling $488 billion. Additionally, the cost of servicing the national debt is estimated to be at least $50 billion, bringing the total to $538 billion. Even if tax revenues hold steady, this implies a deficit of $40 billion.
The Impact of the Tariff War
The tariff war with the U.S. is having a devastating impact on several economic sectors, including autos, metals, appliances, and consumer goods. This is likely to result in a significant drop in revenue, which will only add to the deficit. Increasing spending in the face of this reality seems bound to result in a record-setting deficit.
The Consequences of Debt-Fueled Spending
The decision to increase spending and the deficit will have serious consequences, including accelerating inflation and taking the Canadian dollar even lower. Since Trudeau took power in 2015, the Canadian dollar has already fallen from 78 cents US to 73. The planned spending spree will only exacerbate this problem.
The Credit Rating Warning
A report by credit rating firm Fitch Ratings warns that Canada’s credit rating is at risk due to the rapid and steep fiscal deterioration. The report states that if the Liberal program is implemented, higher deficits are likely to increase federal, provincial, and local debt to above 90% of GDP.
The Root Causes of the Problem
The Canadian economy was in trouble long before the U.S. tariff wars. Business investment per worker is a key predictor of productivity and living standards, yet investment per Canadian worker has been shrinking since 2015. The C.D. Howe report suggests several policy changes to address this issue, including reforming corporate taxes, implementing a tax incentive for early investment, and reducing regulatory barriers.
A Call for Change
The spending spree outlined in the Main Estimates is a cause for concern, and Canadians should be worried about the impact it will have on their living standards and savings. The country needs a change in direction, and an early election may be the only way to unseat the current government and implement the necessary reforms.
Conclusion
In conclusion, Canada’s economic woes are deepening, and the current government’s spending plan is only making things worse. The country needs to take a closer look at its economic policies and make significant changes to address the root causes of the problem. By reforming corporate taxes, reducing regulatory barriers, and promoting investment, Canada can get back on track and improve the living standards of its citizens. Only time will tell if the country will take the necessary steps to avoid further declines in its living standard and inflationary reductions in the value of its hard-earned savings.
