Ottawa could balance budget in 2019 (as promised) with modest spending reduction

Back on Track: How the Federal Liberals Can Deliver Their Promised Balanced Budget by 2019/20

Main Conclusions

• During the 2015 federal election, Justin Trudeau’s Liberals presented a fiscal plan to Canadians that proposed three years of deficit spending of no more than $10 billion annually with a return to a balanced budget by 2019/20. After forming government, they abandoned this fiscal plan—breaking a pledge to Canadians.
• Despite a growing economy, the Trudeau government has recorded annual budget deficits nearly double the promised amount. There is no plan to balance the federal budget and projections by the Department of Finance point to budget deficits well past 2040.
• A key driver of the larger and persistent federal deficits over the course of the government’s current fiscal plan is rapid growth in program spending. Since coming into office, the Trudeau government increased program spending from $253.9 billion (2014/15) to $304.9 billion (projected for 2017/18). This $51-billion increase in spending equals growth of 20.1% in just three years.
• On an annual basis, program spending has increased by 6.3% each year over the same period—much faster than federal revenue (3.3%), inflation plus population growth (2.7%), and nominal GDP (2.6%). In fact, the recent increase in spending is greater than the 2.2% average growth over the previous decade from 2005/06 to 2014/15 (excluding the 17.1% growth in 2009/10 during the recession).
• Still, the Trudeau government could make good on its pledge of a balanced budget by the end of its first mandate in 2019/20 through relatively modest spending adjustments: reducing program spending from its 2017/18 level of $304.9 billion to $301.7 billion in 2019/20—a reduction of $3.2 billion or 1.0% over two years.
• This is a modest spending adjustment compared to the 9.7% reduction over two years that was delivered by Jean Chretien’s Liberals in the 1990s.