Study: Justin Trudeau’s Deficit Could Be As Bad As His Father’s

David Krayden Ottawa Bureau Chief
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A report released this week from Canadian conservative think-tank The Fraser Institute says Prime Minister Justin Trudeau is beginning to take the same debt-laden road as his late father Pierre Trudeau, who was prime minister during the spendthrift late 1960s and 1970s.

Prof. Livio Di Matteo, the report’s author, told The Daily Caller, “The road to debt, like hell, is paved with good intentions.”

Di Matteo, a Lakehead University economics professor, is the author of “A Federal Fiscal History: Canada, 1867-2017.” Di Metteo’s plan was to look at the history of deficit spending in Canada from the earliest days of Confederation to the present government.

A balanced budget has been a relative rarity in those 150 years, occurring about 25 per cent of the time. Di Matteo says it is too early fully assess the younger Trudeau’s fiscal record but that his economic philosophy promotes overspending. 

“He believes the role of government is to do things. Before governments spend money they should at least be asking themselves what they should be spending money on and not advance the position that government spending is good in itself,” he says.

With the exception of the world wars, when governments necessarily spend massive amounts of money maintaining an out-sized military, Canadian spending only appears to  be consistently out control during the administrations of Lester Pearson and Pierre Trudeau, which ran from 1963 to 1984, not counting a nine-month Conservative minority government that briefly touted fiscal responsibility in 1979.

In 30 years of government, the Liberals deficit-spent for 27 of them. Di Matteo notes that Trudeau left office having never balanced the books.

In that era, debt levels didn’t seem to matter when interest rates were low but that all change when the prime rate hit 18 percent during the worst of the recession in the early 1980s.

Di Matteo says the resulting financial crisis forced the federal government to make severe reductions in spending.

Di Matteo is observing the same trend with the younger Trudeau. “Given the surge in deficit financing at the federal level currently underway in the wake of the 2016 Budget, one wonders if the lessons of the 1990s have already been forgotten,” he writes.

For fiscal year 2016/17, Trudeau’s Liberals are sporting a $29.4-billion deficit.

Di Matteo believes that governments will always tend to spend money they don’t have as long as they are committed to persistent interference in the economy. 

As he writes in his report: “The 150 years since Confederation have witnessed a transition of the federal government from its primary concern with the active economic development of a  state grounded in liberal economic principles to an activist role partly aimed at bringing about a more egalitarian state via redistribution.”

He says this activist role can result in extreme economic instability and debt can quickly accumulate if interest rates increase. Canada is approximately $750 billion in debt — a serious liability, but as a proportion of population, not as catastrophic as the U.S. debt.

“Deficit-spending is a tool,” Di Matteo says, “just borrowing money because it’s cheap is not a reason for accumulating debt.”

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