Skip to main content

Finance Minister Chrystia Freeland delivers the federal budget in the House of Commons as Prime Minister Justin Trudeau looks on in Ottawa on April 19, 2021.Sean Kilpatrick/The Canadian Press

A federal budget is coming, so it is time to contemplate the meaning of the word “invest.” In last year’s budget book, variations of that word – invest, investing or investment – were used 675 times.

The major English-language dictionaries all provide primary definitions of the word invest similar to the one in Merriam-Webster: “To commit (money) in order to earn a financial return.”

But the 2021 budget tabled by Finance Minister Chrystia Freeland repeatedly confused the word with another verb, “spend.” Merriam-Webster defines that as: “To use up or pay out: expend.”

The question for the coming budget, expected in April, will be whether Ms. Freeland continues to conflate the two concepts. This year’s budget, like last year’s, will talk about economic growth. But in 2022, mistaking spending for investment would be costly.

Delayed federal budgets undermining oversight of public spending, PBO warns

That’s especially true now that the governing Liberals have struck a deal for a parliamentary alliance with the NDP that calls for spending on things such as public dental care and pharmacare. And at the same time, the government is under pressure to increase military spending. Last year’s budget had already outlined a $101-billion program to boost the economy over three years. A lot of that should be cancelled now.

Obviously, governments have to spend, to build roads or buy ships or pay for services such as health care. Everyone knows from their own lives that smart spending can pay for necessities or improve one’s quality of life.

But the difference between spending and investing should be pretty clear. After spending, you will have less money. After investing, you hope to have more.

Admittedly, that equation is more complicated with government because public investment is usually intended to generate a return by spurring growth in the economy, which would make it possible for governments to raise revenue. But the difference is still important. Especially now.

There is growing concern that as Canada emerges from the COVID-19 pandemic with a short-term economic boomlet, its long-term growth is likely to be relatively weak.

Canadian business leaders fostered the creation of a thing called the Coalition for a Better Future, whose more than 120 members include NGOs, think tanks and companies, to voice that anxiety.

“You have to have economic growth to have the resources to build the kind of society you want,” said Anne McLellan, the former Liberal deputy prime minister, now senior adviser with Bennett Jones, who is co-chairing the coalition with former Conservative cabinet minister Lisa Raitt.

Economist Donald Drummond, who recently co-authored a “shadow budget” for the C.D. Howe Institute, warns that pandemic debt, expected higher interest rates and long-term pressures such as population aging and the costs of climate-change transition could spell danger, especially if growth is weak.

Governments can look at growth in a couple of ways. When the economy is slow, they can spend borrowed money as stimulus to increase demand in the short term. That’s what the Liberal government did with CERB cheques and wage subsidies during the pandemic to prevent a recession, and it worked for that time. But debt eventually carries a cost.

The government can stimulate growth by investing in things that will improve productivity and spur a higher rate of growth year after year, perhaps developing key infrastructure, or encouraging research. But those things must somehow incite additional growth that the market economy cannot, or it’s just shuffling money, Mr. Drummond noted.

But the economy is rolling at the moment, and labour markets are going strong. There’s no need to spend all the money planned in the 2021 budget in order to provide a temporary boost. That’s more likely to cause inflation than growth. What is needed is investment in long-term growth.

Last year, former Bank of Canada governor David Dodge criticized Ms. Freeland’s 2021 budget because there wasn’t enough growth in it, despite the words of her speech. An estimated 75 per cent of the money was devoted to consumption, and 25 per cent to growth. In other words, a lot more spending than investment.

“That has to change,” Ms. McLellan said. “You have to flip that equation.”

Some things might be counted as a bit of both. The $10-a-day child-care program has the potential to spur a long-term increase in economic growth by encouraging the participation of more women in the labour force.

But for the most part, the Liberals have taken to conflating spending with investment because, well, they want to spend. In 2022, it’s important to tell them apart.