The current incarnation of the federal Liberals has parted ways with the Trudeau government on a host of issues. The federal fuel charge, defence spending, bail provisions, capital gains taxation, the digital sales tax: on all of those policies, the Liberals under Prime Minister Mark Carney have charted a much different course, one that has tacked to the political centre (or even right of centre).
But the biggest test of whether the current incarnation of the Liberals really will govern differently than their Trudeau-era predecessors will come on Tuesday, when the Carney government presents its first budget. Will that budget break decisively with the fiscal philosophy of the Trudeau Liberals?
That philosophy can best be summed up as: Spend now, spend more later, and don't worry, ever. Mr. Carney has promised a much different approach, saying his government will focus on spending that boosts economic growth rather than financing current consumption. But Mr. Trudeau also insisted that his debt-financed spending was focused on boosting economic growth.
Finance Minister François-Philippe Champagne will undoubtedly tout the government's fiscal rectitude in his budget speech. But his predecessor, Chrystia Freeland, boasted about her government's fiscal performance even as deficits rose beyond projections, and the national debt ballooned.
So Liberal rhetoric can be safely ignored in any assessment of whether the Carney government plans to take a different path than the Trudeau government. The numbers will tell the tale.
The Liberals will unveil a big deficit on Tuesday, one that will almost certainly dwarf that of any other budget, with the exception of the pandemic-fueled deficit of $327.7-billion in fiscal 2021. That much is not in doubt.
Part of that mega-deficit - recently estimated by the National Bank of Canada to hit $100-billion - comes from the economic turmoil created by U.S. President Donald Trump's unilateral trade war against Canada. Some comes from Mr. Carney's decision to rapidly increase defence spending this year to fulfill this country's commitment to its NATO partners.
But as the graph below shows, the deficit was on the rise long before either of those factors came to bear. In the April 2024 budget, the Liberals forecast a $38.9-billion deficit. Eight months later, that shortfall had grown by $3.3-billion to $42.2-billion.
Just before the spring election, the Parliamentary Budget Officer pegged the federal deficit at $46.8-billion. The Liberal platform added another $15.7-billion on top of that, even before Mr. Carney's announcement in June of an immediate boost to defence spending.
Spending commitments continued to pile up through the summer. By early October, National Bank of Canada economist Stéfane Marion estimated that the federal deficit would likely hit $100-billion.
That is a deep hole, but Canada has enough fiscal headroom that even a 12-digit deficit is, by itself, not a grave concern. But if such shortfalls continued, they would rapidly increase Canada's debt burden relative to the economy, reaching unsustainable levels before too long. That would be a problem.
The question for the Liberals is whether they will build a ladder to climb out of the hole: will they present a plausible path back to a balanced budget, or at least much smaller deficits?
The past performance of the Liberals is anything but encouraging on that front. The Trudeau government's medium-term deficit projections have been nothing short of serialized fiction.
Take a look at the chart below, which lays out three sets of forecasts spanning the fiscal years of 2024 through to 2031. The first is the outlook from the Fall Economic Statement that Ms. Freeland presented in November, 2022.
That forecast looks like a model of fiscal prudence: the deficit gradually shrinks, with the budget edging into surplus in fiscal 2028. However, two years later, the Liberals had a much different outlook. The deficit for fiscal 2024 was twice as big as the forecast two years previous. And that surplus in 2028? That had vanished; instead, a $30.4-billion deficit was predicted.
But that projection, too, was phantasmal. The Parliamentary Budget Officer's forecasts in late March pegged the 2028 shortfall at $62.1-billion. The PBO's forecast, sadly, is already badly outdated.
The same exercise could be used for any medium-term fiscal forecasts from the Trudeau government. Projections of future expenditures were merely jumping-off points, not goals to be met. And they lacked credibility: anyone who believed that the Trudeau Liberals would turn in a budget surplus was simply not paying attention.
The test for the Carney Liberals, then, is whether their medium-term fiscal forecasts - particularly those for the deficit - will be credible, and then whether the government has the fortitude to stick with them.
Such a plan will have to include clear fiscal anchors that are not cut loose the moment they become politically inconvenient, as the case with the Trudeau government.
To be clear, sticking with a fiscal plan does not prevent the government from rolling out new initiatives. It simply means that it will need to pay for them by reallocating funds. Given the extent of Liberal budget bloat over the last decade, that should not be much of a challenge.
The most obvious gauge of the Liberals' fiscal laxness is the cost of running government, which has soared over the last 10 years, as this next chart shows. Those expenses reflect the cost of the federal bureaucracy and federal agencies, and do not include expenses such as transfers to individuals or other levels of government.
Other than a small dip in 2017, operating expenses rose steadily during the Trudeau years, with a total increase of 89 per cent by fiscal 2024.
On average, operating expenses rose 7.3 per cent a year, far outstripping inflation. That bloat was not solely due to the pandemic. By the end of fiscal 2019-2020, the government's operating expenses had surged to $95.2-billion.
But operating expenses grew much more quickly from fiscal 2021 onward. From 2014 to 2020, operating expenses rose by an average of 5.2 per cent; the average annual rate of expansion was nearly double that, at 10.1 per cent, between 2020 and 2024.
Last year, the Trudeau government forecast a decline in operating expenses for fiscal 2025, which ended in March. As yet, there is no final accounting that indicates whether Ottawa met that target. (A small decline in the ranks of the civil service is a hopeful sign that it may have had some success.)
But the Trudeau government's ambitions were exceedingly modest. By 2030, operating expenses would have fallen by just $6-billion.
Here's a startling number: If the Trudeau government had managed to keep to the pace of 2015-20, operating expenses would have been $23-billion lower than they actually were in 2024. Using that same formula, operating expenses should be on the order of $128-billion for the current fiscal year.
Mr. Carney has said that the cost of government needs to fall. And the Liberals have launched a spending review that aims to find substantial savings. But it is not at all clear whether the government will pocket those savings, or merely spend the funds somewhere else.
So there is another fiscal test for the Carney Liberals: do they have the political will to substantially pare down the cost of government, and unwind the excesses of the Trudeau era?
Any successful effort to rein in the cost of government will have to entail a significant reduction in the bloated ranks of the public service. As this last chart shows, the number of employees in the core civil service and government agencies soared under the Trudeau Liberals.
Between fiscal 2016 and 2024, the number of workers in the federal public service jumped by 38 per cent, or 98,986 people. (Those figures exclude parts of the RCMP, members of the Canadian Armed Forces and some smaller agencies.) There was a modest decline in 2025, of 9,807 workers, offsetting about 10 per cent of those gains.
However, the overwhelming majority of departures were in just two spots, the Department of Immigration, Refugees and Citizenship and the Canada Revenue Agency. The good news: there's lots of fat to cut elsewhere.
Mr. Champagne has said he wants to return the public service to a "sustainable level," and has pointed to pre-pandemic staffing levels as a benchmark. Meeting that benchmark would entail eliminating 57,000 positions. If the government depended solely on attrition, it would take a five-year hiring freeze to hit that mark, with savings delayed accordingly.
More important, workforce reductions accomplished through attrition are inherently passive, depending on the decisions of individual employees, not a strategic restructuring by the government.
Depending on attrition would lock in the decisions of the Trudeau government, and would be all the proof anyone might need that the Carney government is merely more of the same fiscal philosophy of spending without care for consequence.
By contrast, a budget that focused on a path toward balance, a clear commitment to specific fiscal anchors and a plan to shrink the public service would be a clear message to Canadians that the Liberals under Mr. Carney are truly parting ways with their predecessor.
Bienvenue to Québerta
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