The governments of Canada’s biggest city and most populous province reacted with serenity to the new federal budget.
Toronto Mayor John Tory said he was heartened to see Ottawa spending more on housing and taking more action on housing affordability. Ontario also welcomed those moves, and praised a strategy to encourage the mining of minerals used to produce electric vehicles, while saying it hoped more funding for infrastructure and the health care system was on the way. Both governments have money problems caused by the COVID-19 crisis and are counting on more help from the Trudeau government. They may want to stay on their federal partner’s good side.
But should they have been quite so mild? Both Mr. Tory and Ontario Premier Doug Ford fashion themselves as fiscal conservatives. They profess to believe that governments should live within their means, avoid excessive debt and go easy on taxpayers. Mr. Ford has been a critic of government overspending since he was the right-hand man to his brother Rob at Toronto city hall, when the brothers promised to “stop the gravy train” and restore order to city finances.
Although the budget presented by Finance Minister Chrystia Freeland was not quite the blowout that some had feared, it is hardly the return to stern fiscal sobriety that she claimed. It includes no less than $56-billion in new spending over six years, a pretty big layout from a government that has dug itself into a deep hole during the pandemic. There are billions for the military, billions to increase housing supply, billions to fight climate change, billions to broaden access to dental care – billions all around. Austerity, this is not.
Despite a flood of new tax revenue from a robust economy, Ottawa won’t come close to balancing its books until 2027. And even that modest goal is dubious. Just about every government budget includes a chart showing how deficits will decline step by steady step in the years ahead. It seldom goes that way in real life.
Remember that Prime Minister Justin Trudeau came to office saying he would run deficits at first, but stop within four years. Asked in December 2015 if the promise was cast in stone, he told reporters: “Very.” His government abandoned the pledge well before the pandemic required it to run a gargantuan deficit to get the country through the crisis. Nothing in its record suggests it will suddenly get serious about balanced budgets.
The government must still find the money to pay for some of its promises from the last election and to fulfill its costly new agreement with the NDP. It faces more demands from its NATO partners to increase its below-average defence spending, from the provinces to build up a health care system shaken by the pandemic and from a host of other groups lining up for support. Will a government approaching the next election, and a finance minister who may have ambitions to become PM herself, be able to resist?
The tendency among junior governments is to welcome big spending from Ottawa, as long as lots of it is coming their way. That is short-sighted. A federal government with a debt of well over a trillion dollars – yes, that’s trillion with a T – is not a reliable long-term partner. As interest rates rise, the cost of carrying all that debt will rise with them, making it harder for Ottawa to come through on its commitments to provinces and cities – at least without a big increase in taxes.
Which brings us to the other part of this budget that should trouble Ontario and Toronto. It includes a new tax on an industry that is one of the pillars of their prosperity. The bank towers that jut from Toronto’s skyline are only the most visible evidence of the importance of the financial services sector. An industry report in 2020 reminded us that it is “the largest private sector contributor to GDP in Toronto, the second-largest in Ontario and third-largest in Canada.” City hall says the sector employs 210,000 workers in Toronto.
The new tax on the income of financial institutions would penalize them for their success, singling them out for no other reason than they are big, profitable and often unpopular. And yet not a word of complaint came from city hall or Queen’s Park after Ms. Freeland unveiled her plans.
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