Now that its Montreal convention is over, we know a little bit more about the Liberal Party’s economic program. One of its central planks is this: budget deficits are a good way to grow the economy and we should not be afraid to get further into debt.
In a video posted some days ago, Justin Trudeau explains that Canadian households are heavily indebted, just like provincial governments, while the federal government has considerably lowered its debt level compared with other developed countries since the 1990s. His conclusion? Ottawa is the only one with enough room to spend and rack up more debt. So, it has to “step up” and do the spending that others are not able to do.
At the Montreal convention, Liberal delegates heard Larry Summers, an American economist, explain that we need “unconventional support policies” — economic jargon for “spending without restraint.” According to him, accumulating more debt is okay when it serves to stimulate the economy.
Are we in a recession? Does the current situation justify sending our public finances back into the red?
One could almost believe we’re back in the 1970s, when the federal debt, until then relatively modest, exploded as Justin Trudeau’s father launched one new program after another, most of the time by intervening in provincial jurisdictions. We saw where that led us, in terms of public finance, but also with regard to federal-provincial relations.
Delegates at the Liberal convention discussed a whole set of “national strategies” on transportation, energy, mental health, children, water, pharmacare, youth jobs, science, and some more. This is the type of big spending, interventionist and centralizing federal government that the son is again proposing today.
They may claim to remain fiscally responsible, but Liberals are actually going down a very steep slippery slope as they adopt this kind of policies.
The burden of debt diminished considerably during the first three years of our government, from 34% to 28% of GDP. It went back up to 33% in the past couple of years due to measures taken to keep us out of the crisis. Our projections show that it should be scaled back to 25% of GDP by 2021.
This debt is not something abstract. Servicing the debt costs taxpayers about $30 billion every year. This is as much money as the GST brings into government coffers. The more we cut down the size of the debt, the fewer resources we will need to pay interest costs, and the more we will be able to afford to cut taxes.
Justin Trudeau and his American advisor still believe in the old Keynesian theory that says government can create wealth by spending more money.
In reality, every time the government takes an additional dollar in taxes out of someone’s pocket, that’s a dollar that this person will not be able to spend or invest. Government spending goes up, private spending goes down. There is no net effect. No wealth creation.
Government borrowing has the same effect. The private lenders who lend money to the government will have less money to lend to other private business people. Government borrowing and spending go up, private borrowing and spending go down. There is no net effect. No wealth creation.
It is like taking a bucket of water in the deep end of a swimming pool and emptying it in the shallow end.
It’s this kind of typical Trudeau policies that ruined our economy in the 1970s. This is not what Canada needs today.
To stimulate the economy, we need to give entrepreneurs the means to create wealth. We need to put in place the best possible conditions to allow the private sector to become more productive: by curtailing public spending, cutting taxes and signing free-trade agreements. Growth and progress depend on more economic freedom.