With growth flat and interest payments ballooning there’s no room for new spending unless deficits are cranked up again — a bad idea
In her economic update Tuesday, Finance Minister Chrystia Freeland just couldn’t help taking a swipe at Leader of the Opposition Pierre Poilievre when she declared: “Canada is not and has never been broken.” In the early 1990s, Canada did come close to needing IMF assistance, but Liberal finance minister Paul Martin’s 1995 budget pulled us back from the abyss by cutting program spending 20 per cent and putting the country back on a path towards balanced budgets. We did receive short-term finance from the IMF during the currency crisis of 1962, but we have never reneged on public debt, unlike hapless Argentina, which has defaulted nine times since its independence in 1816.
Canada may not be broken but the federal government is all but broke and is clearly running out of steam. With a weak economy growing only a little faster than population, there is not a lot of spending room left, not unless deficits and debts are cranked up again. As it is, debt as share of GDP jumps from 41.7 per cent in fiscal year 2022/23 to 42.4 per cent in 2023/24. So much for the fiscal anchors we were promised.
After that, the finance minister predicts, debt as a share of GDP will fall ever so gently to 39 per cent over the following four years. I am quite skeptical about five-year forecasts, especially from a government that over eight years has failed to keep any deficit and debt promises. The 2015 election commitment to cap the deficit at $10 billion is long gone. So is the promise to keep the debt/GDP ratio from rising. Even before the pandemic, federal debt was creeping back up to over 30 per cent of GDP. After eye-popping spending during COVID, any plan to return to pre-pandemic levels has been ditched. Instead, we just accept debt at 40 per cent of GDP and move on. And if a recession hits, you can bet your bottom dollar — which may be the only dollar you have left — that federal debt/GDP will reach a new plateau, also never to be reversed.
As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” With growing public debt charges, expenditures are rising 13.6 per cent over the next three years, faster than revenues, which are forecast to grow only 12.2 per cent. Much of this spending growth is due to interest payments that are rising by almost a half to $53 billion in 2025/26. That is a ton of money — many tons of money — that could have gone to health care, defence or even, yes, general tax cuts. Instead, we are filling the pockets of Canadian and foreign investors who find Canadian bonds very attractive at the interest rates they’re currently paying.
Small mercies: At least the Liberals feel obliged to say they will keep the lid on spending in the short term. Thus they forecast program spending rising by only 10.5 per cent over three years, with a program review expected to trim its growth by $15 billion. On the other hand, the forecast for deficits averages close to $40 billion a year for the next three years.
Economic updates used to be just that, reports on how things are going, but increasingly they are mini-budgets that introduce new measures. With the Liberals sinking in the polls, housing affordability is the focus. But with higher interest rates and more stringent climate and other regulations adding to construction costs, it is unclear how much more housing supply will grow even with the new measures. New spending over five years includes a $1-billion “affordable housing fund” and the previously announced $4.6 billion in GST relief on new rental construction. There’s also $15 billion in loans for apartment construction and $20 billion in low-cost, government-backed CMHC financing, neither of which adds to the deficit.
When money is scarce, of course, nanny-state regulations come into play, as well. A “mortgage charter” will guide banks on how to provide relief for distressed owners (even though banks already prefer to keep people in their homes rather than foreclose). Deductions incurred by operators of short-term rentals will be denied in those municipalities and provinces that prohibit such rentals. Temporary foreign workers in construction will get priority for permanent residence.
The housing plan wasn’t the only focus in the economic statement. To address affordability and climate change, the current government takes pride in its pyramid of budget-busting subsidies for clean energy and regulations dictating private-sector behaviour regarding such things as “junk fees” and grocery prices. There’s also GST relief for psychotherapists and more generous subsidies for journalists and news organizations. (I suppose I should bend a knee to the minister and doff my cap.)
What’s missing in the statement? It barely mentions the country’s poor productivity performance. And you will word-search in vain for “tax reform,” “general tax relief” or “deregulation” aimed at spurring private sector investment. No mention is made that accelerated tax depreciation for capital investment, introduced in 2018, is being phased out beginning January 1st, which will discourage private investment, including in housing construction. Instead, the Liberal economic plan is all about more government, not less, to grow the economy. Without the private sector, that’s not going to work.
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The APEC Summit in Korea last week marked a pivotal moment for U.S. trade policy, delivering tangible wins for American interests. Solid deals were struck with South Korea, while the U.S. and China de-escalated their long-simmering trade war—a clear positive for President Trump. In the chaotic world of Donald Trump, such normalcy disappointed the news media and foreign policy pundits, who grumbled that the event lacked the drama of a disaster.
Yet, as Trump departed Busan, a deeper transformation unfolded, largely overlooked by observers. In just two days, President Trump orchestrated the most significant shift in U.S. trade strategy since China’s 2001 entry into the World Trade Organization (WTO).
The real triumph? Widespread acceptance by Asian trading partners of U.S. tariffs as a cornerstone of a reimagined American economic model. This acceptance dismantles nearly a century of unwavering belief in low tariffs as the unassailable path to global prosperity.
Trump’s tariff approach disrupts the post-World War II global trading system, particularly the U.S.-championed free-trade orthodoxy embraced by both parties for over 50 years. By wielding tariffs effectively, Trump challenges the free-market gospel enshrined in the WTO and echoed by World Economic Forum elites and corporate-sponsored Washington think tanks like AEI and CATO, which decry tariffs as heresy.
At APEC, there was no fiery backlash—only quiet nods to moderate tariffs as fixtures in the evolving economic order. Leaders from across the Asia-Pacific assessed the tariffs’ impacts and moved forward without spectacle, signaling a pragmatic pivot toward Trump’s view of international commerce.
Historically, tariff reductions in Asia stemmed from U.S. pressure to open markets. Mercantilist instincts run deep in most Asian governments—except in freewheeling Hong Kong and Singapore. These nations, built on exports inside protected markets, grasp how tariffs can revitalize U.S. manufacturing and bolster federal revenue. Unlike America’s one-sided openness to Asian imports, Trump’s reciprocity feels like overdue fairness.
As a former free-market purist who once decried tariffs, I initially missed their nuance in Trump’s arsenal. Tariffs impose costs, but the genius lies in offsetting them strategically. Trump’s aggressive deregulation, sweeping tax reforms, and drive for rock-bottom domestic energy prices mitigate burdens and generate a net economic surge—one that Asian leaders implicitly endorsed.
This “internal free-market trio” forms the bedrock of the new U.S. paradigm: moderate tariffs generate revenue and incentivize factory repatriation; deregulation slashes red tape; tax cuts keep capital flowing competitively; and abundant, cheap energy undercuts foreign advantages.
Together, they magnetize global investment, upending a century of free-trade dogma. Energy dominance is key. Through promotion of domestic oil, gas, and renewables, Trump has driven U.S. energy costs 30–50% below those in Europe or much of Asia. For capital-intensive sectors like steel, semiconductors, and electric vehicles, this is structural superiority, not subsidy. Layer on the 2017 Tax Cuts and Jobs Act—slashing the corporate rate to 21% and allowing immediate capital expensing—and the math tilts toward U.S. production. Tariffs may raise import prices by 20–30%, but deregulation accelerates cost-cutting, while energy savings absorb part of the hit.
Critics claim tariffs ravaged the economy post-2018, but COVID-19, not tariffs, triggered the downturn. Trump’s initial round was a successful pilot, extended by Biden—yet without Trump’s deregulation and energy surge, the tariffs became un-offset weight. Blanket cost hikes under Biden stifled growth; Trump’s selective offsets ensure expansion.
America’s edge sharpens as rivals falter. Europe, shackled by leftist policies, environmental mandates, and the Ukraine quagmire, hemorrhages capital to the U.S. In North Asia—China, Korea, Japan, Taiwan—demographic headwinds make investments unappealing compared to North America’s burgeoning market. Aging populations and shrinking workforces amplify this disparity.
APEC underscored America as a vibrant, tariff-protected haven primed for onshoring. Amid Asia’s labor crunch, nations view the U.S. as an investment beacon, mirroring Japan’s model: a high-value exporter offloading low-end manufacturing while retaining competitiveness. Summit chatter revealed minimal tariff gripes. China voiced tepid concerns over escalations, but these seemed rhetorical—testing boundaries rather than igniting conflict.
To free-trade zealots, Trump’s heresy is demolishing sacred economic theory. Past protectionists erred by isolating tariffs without cost-lowering measures. Trump integrates them: selective duties paired with deregulation, technological leaps, and economic decentralization beyond urban centers.
In equilibrium, tariffs harvest revenue and reclaim jobs, capitalizing on America’s fiscal and regulatory advantages. Trump’s blueprint restores balance to free trade, honoring national sovereignty while exposing borderless markets’ perils. It proves moderated protectionism can ignite growth, spur innovation, and draw capital—heralding a bolder, self-reliant American century.
Mark Simon is former group director for Next Digital, parent company for Apple Daily, the leading pro-democracy newspaper in Hong Kong until it was forced to close in 2021.
Tuesday, Nov. 4, the Carney government will table its long-awaited first budget. Don’t be surprised if it mentions Canada’s economic performance relative to peer countries in the G7.
In the past, this talking point was frequently used by prime ministers Stephen Harper and Justin Trudeau and their senior cabinet officials. And it’s apparently survived the transition to the Carney government, as the finance minister earlier this year triumphantly tweeted that Canada’s economic growth was “among the strongest in the G7.”
But here’s the problem. Canada’s rate of economic growth relative to the rest of the G7 is almost completely irrelevant as an indicator of economic strength because it’s heavily influenced by Canada’s much faster rate of population growth. In other words, Canada’s faster pace of overall economic growth (measured by GDP) compared to most other developed countries has not been due to Canadians becoming more productive and generating more income for their families, but rather primarily because there are more people in Canada working and producing things.
In reality, if you use the more appropriate measure for measuring economic wellbeing and living standards—growth in per-person GDP—the happy narrative about Canada’s performance simply falls apart.
According to a recent study published by the Fraser Institute, if you simply look at total economic growth in the G7 in recent years (2020-24) without reference to population, Canada does indeed look good. Canada’s economy has had the second-most total economic growth in the G7 behind only the United States.
However, if you make a simple adjustment for differences in population change over this same time, a completely different picture emerges. Canada’s per-person GDP actually declined by 2 per cent from 2020 to 2024. This is the worst five-year decline since the Great Depression nearly a century ago. And on this much more important measure of wellbeing, Canada goes from second in the G7 to dead last.
Due to Canada’s rapid population growth in recent years, fuelled by record-high levels of immigration, aggregate GDP growth is quite simply a misleading economic indicator for comparing our performance to other countries that aren’t experiencing similar increases in the size of their labour markets. As such, it’s long past time for politicians to retire misleading talking points about Canada’s “strong” growth performance in the G7.
After making a simple adjustment to account for Canada’s rapidly growing population, it becomes clear that the government has nothing to brag about. In fact, Canada is a growth laggard and has been for a long time, with living standards that have actually declined appreciably over the last half-decade.
Ben Eisen
Senior Fellow, Fraser Institute
Milagros Palacios
Director, Addington Centre for Measurement, Fraser Institute
