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World

In a major shift, Canada election heralds more government spending

  • Monday's snap election is expected to herald an era of more big spending, with both Liberals and the usually thrifty Tories
19 Sep 2021

OTTAWA: Canada spent hundreds of billions of dollars to aid workers and keep businesses afloat during the pandemic, causing its national debt to soar. But the usually frugal Canadians don't seem to mind.

Monday's snap election is expected to herald an era of more big spending, with both Liberals and the usually thrifty Tories, running neck and neck, promising more government aid, a monumental shift for Canada after decades of belt-tightening.

"It's not that I don't care about the debt, I just don't think about it as much as my parents and previous generations who thought it was a huge issue," Meg Sweeney, 23, a recent university graduate, told AFP.

Canadians aged 65 or older, who will soon make up one quarter of the population, aren't concerned about having to repay the borrowed funds, while millennials on whom it will likely fall support higher social spending.

"In this election, I'm looking at issues such as climate change, relief from student loans, racial justice and tackling social issues -- like others of my generation," Sweeney added.

Canada entered the pandemic in a strong fiscal position after a long era of frugality, allowing it to dole out hundreds of billions of dollars in Covid emergency aid.

That, however, cost it its AAA debt rating after Fitch downgraded the country a notch to AA+.

It also sent Ottawa's debt soaring to a forecasted Can$1.2 trillion (US$960 billion) in the fiscal year 2021-2022, with a peak debt-to-GDP ratio of 51.2 percent that would fall only marginally by 2025-2026, from an average 31 percent prior to pandemic.

Justin Trudeau's Liberals are proposing Can$78 billion in new spending.

His main challenger, Conservative leader Erin O'Toole, also believes the government should spend more to steer the country out of recession. O'Toole is proposing Can$51 billion in new spending to "kick the economy into turbo drive" and use the ensuing uptick in revenues to balance the budget in 10 years.

"This election is about who you think can get us out of the recession and rebuild the economy," O'Toole said at the start of the election campaign.

When asked about the debt, Trudeau replied: "It matters to be fiscally responsible. It matters to live within our means. I think it also matters to be making the right investments so that future generations can prosper."

Trudeau noted that record low interest rates have made the cost of borrowing cheap.

But Kevin Page, head of the University of Ottawa's Institute of Fiscal Studies and Democracy, warned that there is always a risk that rates would go up.

Although economists agree the debt is sustainable, Page said: "There's a rightful concern that it's an open bar, people assuming with low interest rates that we can run up the debt and there will be no significant costs."

Pandemic exposed social inequities

Jerry Dias, head of Canada's largest private sector union, argued the pandemic exposed social inequities that require heaps of new spending to mend.

"It makes total sense to fix our social programs to reflect reality," Dias said. He called for a universal prescription drug plan and affordable child care so women, who lost significant income while bearing the brunt of unpaid care work over the past 18 months, can return to the workforce.

Ian Lee, a professor at Carleton University's Sprott School of Business in Ottawa, said he is amazed by the change in people's mindset.

"I'm surprised that Canadians' attitudes toward debt has shifted so dramatically during the pandemic, how cavalier people have become about piling on debt."

Lee cautioned that soaring costs, including on health care may prompt the government to adopt "very profound changes in taxation."

Growing up through the 2008 financial crisis, weather disasters, and now the pandemic, Sweeney, the university graduate says: "National debt is just so back of mind, and less important, with everything else going on."

"I'd rather focus my voting and community involvement on things where I can see a tangible impact now, and we can deal with the debt later," Sweeney said.

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