From the Fraser Institute

By Jake Fuss and Grady Munro

Rather than directly spend money on critical infrastructure such as roads, bridges, ports or even electricity grids—things that traditionally are considered capital investments—the government plans to spend money on subsidies and tax breaks to corporations (i.e. corporate welfare) under the umbrella of “capital investment”

The Carney government’s long-awaited first budget is almost here—expected Nov. 4—but Canadians may not recognize what they get. Early on, the new government promised a new approach to spending. Thanks to a decade of record-breaking spending under Justin Trudeau, the federal deficit sits at a projected $48.3 billion while total debt has eclipsed $2.1 trillion. But the Carney government’s plan announced this week appears to rely on accounting maneuvers rather than any substantive spending reductions.

According to the latest details released by the government, the Carney government will separate spending into two categories: “operating spending” and “capital investment.” Within this framework, the government plans to balance the “operating budget” within three years.

But of course, if the government eventually balances the operating budget, that doesn’t mean it will stop borrowing money to pay for“capital investment”—a new category of spending the government can define and expand whenever it deems necessary.

Currently, according to the government, capital investment will include any spending or tax expenditures (e.g. tax credits and deductions) that “contribute to capital formation”—the creation of assets (such as machinery or equipment) that improve the ability of workers to produce goods and services.

In other words, rather than directly spend money on critical infrastructure such as roads, bridges, ports or even electricity grids—things that traditionally are considered capital investments—the government plans to spend money on subsidies and tax breaks to corporations (i.e. corporate welfare) under the umbrella of “capital investment,” so long as this spending will somehow “encourage” capital formation. But clearly, corporate welfare doesn’t belong in the same category as the expansion of a critical port, for example, and the government shouldn’t pretend that it does.

Put simply, because the term “capital investment” is so broad and malleable, the government can seemingly use it whenever it wants. For example, to meet NATO’s spending target of 2 per cent of GDP, a key point of contention in Carney’s negotiations with President Trump, the Carney government could (inaccurately) categorize some defence spending as capital spending. And in fact, the Parliamentary Budgetary Officer—Ottawa’s fiscal watchdog—views the Carney government’s definition as “overly expansive” and suggests the inclusion of corporate tax breaks and subsidies will “overstate” the government’s actual contribution to the creation of capital.

This approach by the Carney government will not help Canadians understand the true state of federal finances. While Finance Minister François-Philippe Champagne recently said that the “deficit and the debt will be recorded in the same manner as in previous budgets,” on budget day and beyond the government will undoubtedly focus on the operating budget when communicating to Canadians. So, the government will only tell part of the story.

After years of fiscal mismanagement with large increases in spending and debt under the Trudeau government, Canadians need a government willing to make the tough decisions necessary to get federal finances back in shape. But the Carney government appears poised to shirk accountability and use tricks to cloud the true state of federal finances.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute

From the Fraser Institute

By Kenneth P. Green

Earlier this month, when Alberta Premier Danielle Smith announced that her government, in conjunction with major players in the oilsands, would propose a pipeline to carry Alberta’s products to tidewater off Canada’s west coast, she may have called the Carney government’s bluff (and the bluff of any other government that might be bluffing about pipelines).

In June, the Carney government passed Bill C-5 to purportedly eliminate the gridlock that prevents the construction of major energy infrastructure. But the government’s first list of projects to get the Bill C-5 treatment did not include any oil or gas pipelines (which was no surprise, in light of Canada’s hostile regulatory landscape that deters private-sector companies from investing time and money). In response to Smith’s announcement, federal Natural Resources Minister Tim Hodgson said any proposal for a pipeline must include “meaningful consultations with Indigenous rights holders” and close partnerships with “all affected jurisdictions.”

Meanwhile, in British Columbia, one of those “affected jurisdictions,” Premier David Eby is essentially denying that Smith’s proposal has significant private-sector support, implying it will require federal spending and that it’s a “direct threat to the kind of economy we are trying to build.” And yet, back in June, Eby said he was open to the idea of another privately-funded pipeline to tidewater in northern B.C., noting only that he doesn’t support “tens of billions of dollars in federal subsidy going to build this new pipeline when we already own a pipeline that empties into British Columbia,” referring to the Trans Mountain pipeline. In other words, it sounds like Eby has changed his tune.

In Quebec, Premier François Legault said in February that his government might be open to a proposed oil pipeline (Energy East) from Alberta—“For the moment, there is no project on the table,” he said. “If there is a project on the table, we will look at it.” Fast-forward to today. When asked about Smith’s proposal, leader of the Bloc Quebecois, Yves-François Blanchet (a close ally of Legault’s), said “Let’s imagine that Quebec is an independent and free country. We will go on the world stage to say that Alberta is destroying the environment of the whole planet.”

Clearly, while the federal government and key provincial governments have implied that they’re open to new pipelines (albeit, under an ever-changing roster of conditions), Premier Smith’s proposal has seemingly revealed the truth. They sound like the same implacable opponents of oil and gas development, in submission to the international climate change movement’s zero-tolerance policy for fossil fuels, that have dominated in Canada for a decade.