New Prime Minister Carney’s Fiscal Math Doesn’t Add Up

For the first time in Canada’s history, the Prime Minister has never sought or won a democratic election in any parliament. Mark Carney’s victory to replace Justin Trudeau as the leader of the Liberal Party means he is now the Prime Minister. Carney’s resume and achievements make him one of the most accomplished prime ministers ever. Still, there are a number of basic questions about Carney’s fiscal and economic math that Canadians need to consider carefully as we enter an election.

Carney’s accomplishments should be recognized. He has a bachelor’s degree in economics from Harvard and both a masters and doctoral degrees in economics from Oxford University. He spent over a decade at Goldman Sachs, a leading US-based financial firm then left to take up senior positions at both the Bank of Canada and later the Department of Finance. He became the Governor of the Bank of Canada in 2007 and then the Governor of the Bank of England in 2012. After his tenure at the Bank of England, Carney took up a number of private sector posts including chairman at Brookfield Asset Management, a major Canadian company.

Despite these obvious accomplishments and a deep CV, Carney’s proposed fiscal policies pose a number of serious questions.

Carney self-characterizes as a pragmatist and someone who will bring the Liberal Party back to the political centre after having been pushed to the left by former prime minister Justin Trudeau. Even former prime minister Jean Chrétien, one of the country’s most electorally successful prime ministers called for the party to move back to the centre.

Specifically, Carney said he would “cap” the size of the federal government workforce and reduce federal spending through a review of program spending as was done in 1994-95. He also indicated that the operating budget would be balanced within three years. He criticized the current government for spending too much and not investing enough, and for missing spending targets and violating its own fiscal guardrails. The implication of all these policies is that the role of the federal government will be rolled back with reductions in spending and federal employment, and reducing regulations. In many ways, these policies mirror those of former prime minister Chrétien.

However, there are numerous statements by Carney that seem to contradict these policies, or at the very least, water them down significantly. Consider, for instance, that Carney has indicated there will be no cuts to transfers to provincial governments (19.8 per cent of budget spending), no reductions in the income-transfers to individuals and families (25.8 per cent), and the government doesn’t determine interest charges on its debt (another 9.7 per cent). So, Carney has already taken over half the federal budget off the table for reductions.

It’s not clear whether he would reduce what’s referred to as “Other Transfers” which includes support for EV programs and investment incentives. This represents 17.9 per cent of the current budget. And if you read any of Carney’s climate-related initiatives, it appears this category of spending will actually increase, not decrease. Moreover, Carney stated he won’t touch some transfers such as the national dental care and pharmacare programs.

The major remaining category of federal spending is “operating expenses”, which includes the costs of running more than 100 government departments, agencies and Crown corporations. It’s expected to reach $130.6 billion this year and represents 23.4 per cent of the federal budget. But again, Carney has only committed to “capping” the federal workforce despite significant growth since 2015 and then review programs. Unless he’s willing to actually reduce federal employment and/or challenge existing contracts with the civil service, it’s not clear how he can find meaningful savings in the short term.

Recall that the expected deficit this year is $42.2 billion and to balance the budget over the next three years, Carney needs to find roughly $30 billion in savings. (Some of the deficit reduction is expected to come from economic growth, which increases government revenues).

However, this ignores the pressure on the federal government to markedly and quickly increase defense spending. A recent analysis estimated that the federal government would have to increase defense spending in 2027-28 by $68.8 billion to meet its NATO commitment, which is what President Trump is demanding. This single measure of spending could materially derail the new prime minister’s commitment to a balanced budget within three years.

But Carney has complicated the nation’s finances by committing to separating operating spending from capital spending. The former are annual spending requirements like salaries and wages to federal employees, income transfers to people through programs like EI and Old Age Security, and transfers to the provinces for health and social programs. Carney has committed to balancing the revenues collected for these purposes against spending.

However, he wants to remove anything that is deemed an “investment” or “capital”. That means spending on infrastructure like roads and ports, defense spending on equipment, and energy projects.

While Carney has committed to only running a “small deficit” on such spending, the commitment is eerily similar to Trudeau’s commitment in 2015 to run “small deficits” for just “three years” and the budget will balance itself through economic growth. The total federal gross debt has increased from $1.1 trillion when Trudeau took office in 2015 to an estimated $2.3 trillion this year.

The clear risk is that a Carney government will simply reduce spending in the operating budget and move it to the capital budget, thus balancing the latter while still piling up government debt.

Clarity is required from the new prime minister with respect to: 1) What operating expenses does he plan to reduce (or perhaps more generally is open to reducing) over the next three years to reach a balanced operating budget? 2) What specific commitment is Carney making on defense spending over the next three years? 3) What current spending will the new prime minister move or potentially move from the budget to his new capital budget? And finally, 4) What measures will be taken if revenues don’t materialize as expected and/or spending increases more than planned to ensure a balanced operating budget in three years?

Until greater clarity and details are provided, it’s hard, even near impossible, to know the extent to which the new prime minister is pragmatically offering a plan for more sustainable government finances versus playing politics by promising everything to everyone.

Jason Clemens

Executive Vice President, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Related Topics:#FraserInstitute #JakeFuss #MarkCarney feature JasonClemons MarkCarney'sMath

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Albertans have contributed $53.6 billion to the retirement of Canadians in other provinces

Published on March 27, 2025

Todayville

From the Fraser Institute

By Tegan Hill and Nathaniel Li

Albertans contributed $53.6 billion more to CPP then retirees in Alberta received from it from 1981 to 2022

Albertans’ net contribution to the Canada Pension Plan —meaning the amount Albertans paid into the program over and above what retirees in Alberta
received in CPP payments—was more than six times as much as any other province at $53.6 billion from 1981 to 2022, finds a new report published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Albertan workers have been helping to fund the retirement of Canadians from coast to coast for decades, and Canadians ought to know that without Alberta, the Canada Pension Plan would look much different,” said Tegan Hill, director of Alberta policy at the Fraser Institute and co-author of Understanding Alberta’s Role in National Programs, Including the Canada Pension Plan.

From 1981 to 2022, Alberta workers contributed 14.4 per cent (on average) of the total CPP premiums paid—Canada’s compulsory, government- operated retirement pension plan—while retirees in the province received only 10.0 per cent of the payments. Alberta’s net contribution over that period was $53.6 billion.

Crucially, only residents in two provinces—Alberta and British Columbia—paid more into the CPP than retirees in those provinces received in benefits, and Alberta’s contribution was six times greater than BC’s.

The reason Albertans have paid such an outsized contribution to federal and national programs, including the CPP, in recent years is because of the province’s relatively high rates of employment, higher average incomes, and younger population.

As such, if Alberta withdrew from the CPP, Alberta workers could expect to receive the same retirement benefits but at a lower cost (i.e. lower payroll tax) than other Canadians, while the payroll tax would likely have to increase for the rest of the country (excluding Quebec) to maintain the same benefits.

“Given current demographic projections, immigration patterns, and Alberta’s long history of leading the provinces in economic growth, Albertan workers will likely continue to pay more into it than Albertan retirees get back from it,” Hill said.

Understanding Alberta’s Role in National Programs, Including the Canada Pension Plan

Understanding Alberta’s role in national income transfers and other important programs is crucial to informing the broader debate around Alberta’s possible withdrawal from the Canada Pension Plan (CPP).
Due to Alberta’s relatively high rates of employment, higher average incomes, and younger population, Albertans contribute significantly more to federal revenues than they receive back in federal spending.
From 1981 to 2022, Alberta workers contributed 14.4 percent (on average) of the total CPP premiums paid while retirees in the province received only 10.0 percent of the payments. Albertans net contribution was $53.6 billion over the period—approximately six times greater than British Columbia’s net contribution (the only other net contributor).
Given current demographic projections, immigration patterns, and Alberta’s long history of leading the provinces in economic growth and income levels, Alberta’s central role in funding national programs is unlikely to change in the foreseeable future.
Due to Albertans’ disproportionate net contribution to the CPP, the current base CPP contribution rate would likely have to increase to remain sustainable if Alberta withdrew from the plan. Similarly, Alberta’s stand-alone rate would be lower than the current CPP rate.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Nathaniel Li

Senior Economist, Fraser Institute

2025 Federal Election

Voters should remember Canada has other problems beyond Trump’s tariffs

Published on March 26, 2025

Todayville

From the Fraser Institute

By Jake Fuss and Grady Munro

Canadians will head to the polls on April 28 after Prime Minister Mark Carney called a snap federal election on Sunday. As the candidates make their pitch to try and convince Canadians why they’re best-suited to lead the country, Trump’s tariffs will take centre stage. But while the tariff issue is important, let’s not forget the other important issues Canadians face.

High Taxes: As many Canadians struggle to make ends meet, taxes remain the largest single expense. In 2023, the latest year of available data, the average Canadian family spent 43.0 per cent of its income on taxes compared to 35.6 per cent on food, shelter and clothing combined. High personal income tax rates also make it harder to attract and retain doctors, engineers and other high-skilled workers that contribute to the economy. Tax relief, which delivers savings for families across the income spectrum while also improving Canada’s competitiveness on the world stage, is long overdue.

Government Debt: At the end of March, Canada’s total federal debt will reach a projected $2.2 trillion or $52,094 for every man, woman and child in Canada. The federal government expects to pay $53.7 billion in debt interest costs in fiscal year 2024/25, diverting taxpayer dollars away from programs including health care and social services. The next federal government should rein in spending and stop racking up debt.

Red Tape: Smart regulation is necessary, but the Canadian economy is plagued by a costly and excessive regulatory burden imposed by governments. Regulatory compliance costs the economy approximately $12.2 billion each year, and the average business dedicates an estimated 85 days towards compliance. The next federal government should cut undue red tape and make Canada an easier place to do business.

Housing Affordability: Canadians across the country are struggling with the cost of housing. Indeed, Canada has the largest gap between home prices and incomes among G7 countries, and rents have spiked in recent years in many cities. In short, there’s not enough housing to meet demand. The next federal government should avoid policies that stoke further demand while working with the provinces and municipalities to remove impediments to homebuilding across Canada.

Collapsing Business Investment: Business investment is necessary to equip workers with the tools, technology and training they need to be more productive, yet business investment has collapsed. Specifically, from 2014 to 2021, inflation-adjusted business investment per worker fell from $18,363 to $14,687. Declining investment has helped create Canada’s productivity crisis, which has led to a decline in Canadian living standards. Clearly, Ottawa needs a new policy approach to address this crisis.

Declining Living Standards: According to Statistics Canada, inflation-adjusted per-person GDP—a broad measure of living standards—dropped from the post-pandemic peak of $60,718 in mid-2022 to $58,951 by the end of 2024. The next government should swiftly reverse this trend by enacting meaningful policy reforms that will help promote prosperity. The status quo simply will not suffice.

Tariffs are a clear threat to the Canadian economy and should be discussed at length during this election. But we shouldn’t forget other important issues that arose long before President Trump began this trade war and will continue to hurt Canadians if not addressed.