Cory Morgan: Ottawa’s Budget 2024 Focuses on Gaining Public Approval Instead of Improving Fiscal Responsibility

Amid campaign-style announcements from the Liberal government in the lead-up to the 2024 budget, Canadians were well informed about the upcoming spending increases across various programs. These ranged from housing initiatives to military funding, as well as a significant boost in funds for AI development in Canada.

The Trudeau government made it clear that fiscal restraint would not be a priority in this year’s budget. While they vowed not to exceed a $40 billion deficit, questions arose about how they planned to finance their ambitious spending commitments.

Fortunately, the budget did not include proposals to levy an “excess profit” tax on grocers and energy companies, as suggested by Jagmeet Singh’s NDP. There were also no plans to raise the GST or increase personal income taxes for average Canadians.

However, on the downside, the government announced a substantial increase in capital gains taxes, aiming to generate $19 billion over the next five years. Despite this goal, higher taxes on capital gains can often deter investment and encourage capital flight, hindering economic growth.

The budget’s focus on capital gains tax hikes was likely a concession to secure NDP support for passing the budget, framed as a measure to promote fairness and tax the wealthy. While low-income individuals may not be directly affected, middle-class investors and small business owners could feel the impact when trying to realize gains.

The budget also outlined long-term spending plans, such as committing to building 3.9 million homes by 2031 and allocating $8.1 billion in new defense spending over five years. The document contains a diverse array of spending initiatives, including investments in affordable housing, defense, CBC Radio, school lunch programs, and high-speed rail services, spread out over years.

Despite the optimistic economic assumptions underpinning the budget, its success hinges on maintaining a robust economy over the next year to keep the deficit in check. Any slowdown in economic growth or an increase in interest rates could quickly escalate the deficit.

Overall, the 2024 budget appears to cater to various interests with hopes of bolstering public support rather than implementing stringent financial reforms. The government’s decision to defer tough economic decisions may exacerbate Canada’s economic challenges, including rising debt-servicing costs and a declining GDP per capita ratio.

Concerns linger about burdening future generations with debt in pursuit of short-term political gains. Achieving economic stability will require difficult choices and disciplined fiscal policies, a path that the current government seems reluctant to pursue.

While Prime Minister Trudeau has framed the budget as a step towards fairness for all generations, the reality of its economic implications raises doubts about its long-term sustainability.