Carney, Like Trudeau, Thinks Big Deficits Are The Answer To Tough Times

A major reason – which Prime Minister Mark Carney noted prior to the vote – was the polices of his predecessor, Justin Trudeau, whose decade-long government presided over the worst record of economic growth in Canada since the Great Depression.

As Carney said in February while running for the Liberal leadership:

“I want to be clear about the quote ‘strength’ of our economy.

“Our economy over the last five years has been driven by a big increase in the labour force, which was largely because of a surge in immigration that is now trying to be controlled, and by government spending that grew over 9% year after year after year – twice the rate of growth of our economy.

“So our economy was weak before we got to the point of these threats from President (Donald) Trump.”

Because immigration and government spending increased well ahead of the growth rate of the economy, Carney said, Canada’s financial position was weak even before the launch of Trump’s irrational tariff war against us.

As Statistics Canada reported in February, real (inflation-adjusted) Gross Domestic Product per capita – a widely accepted measure of a nation’s standard of living – fell 1.4% in 2024, following a decline of 1.3% in 2023, all of which happened pre-Trump.

Flash forwarding to the present, Statistics Canada reported Friday that the national unemployment rate rose 0.2 percentage points to 6.9% in April, matching the November 2024 rate, which was the highest since January 2017, excluding the pandemic years of 2020 and 2021.

On Thursday, Bank of Canada governor Tiff Macklem and senior deputy governor Carolyn Rogers warned in releasing the bank’s financial stability report that a long-lasting trade war with the U.S. “poses the greatest threat to the Canadian economy” and to “financial stability.”

While describing its analysis as “an assessment of vulnerabilities” rather than a “projection,” it warned of the potential for widespread unemployment in trade-dependent industries, and increasing defaults on mortgages and other consumer and business loans, resulting in a credit freeze by Canada’s banks.

As a result, “struggling households and businesses would have less access to credit to get through tough times,” which “could exacerbate the economic downturn.”

That’s the situation the Carney government is facing, which also would have been the case if Pierre Poilievre and the Conservatives had won the election.

What’s concerning is that having diagnosed the problems correctly, Carney seems to be following the path of the Trudeau government, which he warned against leading up to the April 28 election.

Carney’s campaign platform, released on April 19, calls for $130 billion in new spending over the next four years, dramatically increasing the federal deficits that had been projected by the previous Trudeau government in its fall economic statement last December.

Carney plans to run a deficit of $62.3 billion in this fiscal year, which started on April 1 and ends on March 31, 2026, compared to $42.2 billion by the previous Trudeau government.

In the 2026-27 fiscal year Carney’s projected deficit is $59.9 billion compared to Trudeau’s $31 billion, in 2027-28 $54.8 billion compared to $30.4 billion, and in 2028-29, $47.8 billion compared to $27.8 billion.

In total, Carney is projecting deficit spending of $224.8 billion over the next four years compared to $131.4 billion projected by the Trudeau government, an increase of 71%.

On April 29, the day after the federal election, the Fitch Ratings credit service expressed concern about the increase in federal spending planned by Carney. While it did not downgrade Canada’s current rating of AA+, a downgrade would raise interest rates the government must pay on the federal debt.

No doubt the Trudeau government, had it survived, would have increased its deficit projections for the coming fiscal years, but the 71% increase over four years projected by the Carney government indicates that the new Liberal government will be following the same economic path as the previous one.

Carney argues what will be different is that his government will devote a greater share of spending to capital projects – meaning public infrastructure with the intent of boosting economic activity, productivity and job creation – as opposed to operational spending, which is the cost of running the government.

For that reason, he’s divided the federal deficit into operating and capital expenditures.

But in the end, it all has to be financed by taxpayers, and, as the old saying goes, doing the same thing over and over again expecting different results is the definition of insanity.