JAY GOLDBERG: Will Carney pursue real spending cuts or voodoo budgeting?

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Is Prime Minister Mark Carney about to pull a Jean Chretien?   

According to media reports, cabinet has been asked to come up with suggestions for steep cuts to program spending over the next three years.   

Spending cuts the prime minister is looking for include a 7.5% reduction in 2026-27, followed by cuts of 10% in 2027-28 and 15% in 2028-29.  

While these cuts may sound steep, they are more than needed after the explosion of federal spending over the past decade.   

The cuts Carney is supposedly looking for are reminiscent of the cuts the Chretien government imposed soon after assuming office in the early 1990s. Canada at that time, too, had been running steep deficits for a lengthy amount of time and the fiscal house was in shambles.   

Chretien imposed steep cuts during his first term in office, but those cuts allowed his government to balance the budget and kept a bipartisan consensus in place in favour of balanced budgets for the better part of the next two decades.   

That consensus was destroyed under the Justin Trudeau Liberals, who ran massive deficits with no plan to ever balance the books.   

Spending cuts are needed even more so today than when Carney took over as prime minister a few short months ago.   

During this spring’s election campaign, Carney committed to significant new spending and tax cuts and has since committed to tens of billions of dollars of additional defence spending.  

A new report out by the C.D. Howe Institute estimates that this year’s deficit will hit $92 billion under Carney’s policies, double what the parliamentary budget officer was projecting just before Carney took over for Trudeau in March.   

The C.D. Howe report also expects the Liberals to add $310 billion to the national debt over the next four years without a course correction.   

Canadian taxpayers cannot afford to keep going down this road.  

The federal government already spends more on debt interest than on health care. In fact, the government spends more on debt interest payments than every cent brought in through the federal sales tax.  

That’s right. If previous generations of politicians had the courage to reject deficit spending, Canadians could be GST-free right now.   

None of this is sustainable. As an economist, Carney should know that. That’s likely why Carney is asking his ministers to devise plans to impose deep spending cuts in their ministries.   

Canadians should be wary, however, that Carney may just try to engage in voodoo accounting.   

Part of the Liberal campaign platform was a plan to split the federal budget into two budgets — an operating budget and a capital budget.   

Carney may very well be seeking savings on the operating side, but he has also signalled plans to ramp up capital spending, which could still mean major increases in the federal debt.  

The C.D. Howe Institute is wary of that exact possibility.   

“The large deficits projected…cannot be downplayed or disguised by dividing the budget into two new categories — operating and capital — and targeting a balanced operating budget only, as proposed in the election platform.”   

Among the many problems created by presenting two separate budgets is that it would allow Carney to add all kinds of new spending over the next four years and simply label it capital spending, all the while pointing to operational spending cuts and an improving picture there.   

But that’s like cutting back on spending on one credit card but spending more on a second.  

Ultimately, the bill must be paid, no matter which taxpayer credit card Carney chooses to use.   

Ahead of this fall’s budget, Carney would be wise to drop his plan for budget gimmicks and stick to a single plan that includes real savings and clear spending cuts. It’s time to end the party with taxpayer money and return to the Chretien consensus that balanced budgets matter.   

Jay Goldberg is the Canadian affairs manager at the Consumer Choice Center