Making Sense of Canada’s 2023 Federal Government Budget

Contributed by Robert Lyman © 2023. Robert Lyman’s bio can be read here.

For most Canadians, the annual announcement by the Government of Canada of its Budget is a difficult-to-understand event. It may cause a 24-hour news story, but it probably seems of little importance to people’s daily lives. The numbers reported, usually in billions of dollars, seem incomprehensible. If there is a controversy in the media, it will probably be about an issue few understand or care about, which is whether the government is spending and taxing too much or too little, and by which standards one should judge this.

The purpose of this article is draw attention to some of the most important numbers in Budget 2023, announced on March 27, 2023, and to comment on what it means.

Each Budget does a few different things. It describes how much money the government has received from taxes and other sources and generally (i.e. in terms of categories) how that money has been spent during the past year. It reports on the economic trends in Canada; that is, how the population and national income is growing and the state of trade, inflation and employment. It announces the major changes that the government proposes to make in terms of policies, programs, taxes and related legislation over the next five years. It provides the Department of Finance’s analysis of what these things will mean in terms of financial performance. I will focus here on the last item.

Original images from Page Tutor. First image shows $1 million at a person’s feet in packets of $100, each packet worth $10,000. This unit is extrapolated and stacked on pallets to illustrate the relative size of the money to the person.

The government’s financial performance in fiscal year 2021-2022 marks the point of departure for Budget 2023. The budgetary revenues (the money taken in) totaled $413 billion. That’s huge amount of money. It’s almost $11,000 from every man, woman and child in Canada. If you walked 413 billion steps, you would go 78 million miles, about 80% of the way from the earth to the sun. If you spent 413 billion seconds on a pastime, it would take you 12,800 years.

Yet the government spends more than it takes in – a lot more. In 2021-2022, the government spent $493 billion, or almost $13,000 for every person in Canada. That’s about $1.35 billion every day.

As a result, in 2021-22, the budget had a deficit of $90 billion. The deficit added to Canada’s previous debt of about $1.1 trillion, raising current debt to about $1.2 trillion. That’s equal to $31,600 for every person in Canada. That means a family of four would share about $126,000 of the federal government’s debt – in effect, a second mortgage that they don’t know about.

Shocked couple looking at laptop while managing home finances.
Image licensed from Adobe Stock.

The five-year outlook is clouded with uncertainty, but based on the government’s assumptions, annual revenues will increase steadily so that by 2027-2028 the government will take in from taxpayers $542.8 billion. That is the good news (or bad news if you are the taxpayer). The really bad news is that the government plans to spend more than it takes in. The annual deficit is projected to be $43 billion in 2022-23, $40 billion in 2023-24, $35 billion in 2024-25, $27 billion in 2025-26, and $16 billion in 2026-27.

The continuing deficits will increase the national debt to $1.3 trillion by the end of 2026-27, or $34,200 per person. All of this, along with rising interest rates, will increase the amount that the federal government has to pay in interest charges on the debt. Those stood at $24.5 billion in 2021-22. (For comparison, the City of Toronto’s annual operating budget is about $15 billion.) The annual costs of interest charges are projected to almost double (to $48.3 billion) by 2026-27. That’s about the same as the total federal government expenditure in 1970.

Why should people care if the government doesn’t? The Trudeau government has adopted the view that so long as the annual expenditures and debt remain a relatively constant share of Canada’s gross domestic product, it will be affordable indefinitely. Budgetary expenditures were 16.5 % of GDP in 2021 and they are projected to be 16.5% of GDP by the end of the planning period. However, even if one assumed that this were right, public debt charges are projected to rise from 1% of GDP in 2021-22 to 1.6% of GDP in 2023-24, and to stay higher beyond that.

Also, the federal government is not the only one quickly increasing its taxing, spending and indebtedness. So are the provincial, territorial and municipal governments. The increase in spending by provincial governments varies across Canada, but it adds considerably to the present and future burdens on taxpayers.

But which taxpayers? Contrary to some common perceptions, someone does have to pay back the money governments borrow, and if current expenses are not paid for by today’s taxpayers, they will have to be paid for, with interest, by future taxpayers. Is it fair to leave a legacy of ever-rising cost and indebtedness on our children and grandchildren? This is a value judgment that each voter must make.

The government’s spending has many other important effects than those people think about. High levels of government spending stimulate the economy, but they also add considerably to rising prices and worsen the problems of affordability now affecting those with low or fixed incomes. They leave the government and the country vulnerable to “surprises”, that is, unexpected recessions or pandemics that might require increased spending in future when governments may have less capacity to borrow. If that happened, the government would be forced to sharply reduce spending, sharply increase taxes, or do both at the worst possible time. The worst case is that, at some stage the international banks and other lending institutions that provide the loans governments depend on may sharply increase the cost of borrowing or refuse it altogether.

But there are other implications that people almost never think about. Fundamentally, when governments impose taxes, they are taking money from the people who earned it and reallocating it to others. They reduce the incentive of the most productive in society, and they withdraw funds that would probably otherwise be invested by private business and use it for projects that the governments favour. In other words, they “crowd out” the most productive uses of money, ones that might increase the productivity and competitiveness of the economy, the ones that are needed to increase Canadians’ incomes over time.

The sheer size of government spending has another ill-understood effect. When a government is spending almost $500 billion per year, and adding at least $10 billion to $20 billion per year in new spending every year, it leaves much less time for Cabinet and individual Ministers to properly review the wisdom of spending proposals and to avoid overspending and waste in already approved programs. With many billions at stake every year, who has time to care about the proposals that only cost a few hundred million? Even the senior officials, unelected but responsible to control hundreds of millions of dollars on existing programs, cannot possibly have time to properly manage expenditures of only a few million. This should be obvious from the frequent stories about the waste or misspending of tens of thousands of dollars on travel or receptions – things that the public can understand – while the effects of poor controls over millions of dollars goes daily unreported.

Yes, budgets may seem boring and it is difficult to understand the numbers. They also are too important to be ignored.

2 Comments

  1. Andrew Roman

    Excellent summary.

  2. Tom Gallagher

    The roll-on apathy in a society, created by taxes on the productive and gifts to the idle, is an important psychologically destructive reality.
    Recovery from an Indebted, Depressive, Recessive condition requires tough decisions that often frustrate and create apathy among those in society that used to care and make all the difference.

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