Sparmaßnahmen aus Chrétien aus der Zeit könnten bald unter Carney zurückkehren

Oh good, history really does rhyme, except this time we don’t even get the optimism of the deficit slayers narrative. It’s just more cuts on top of cuts, a country that already feels smaller and meaner than it did in the 90s, and now we’re supposed to swallow it again under Carney like it’s medicine.

It’s a good article, but I’m surprised they managed to write the article without the obvious elephant in the room… the cost of Canadian government borrowing has now risen to what it was at the tail end of the Chretien era, and continues to rise: [Selected bond yields – Bank of Canada](https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/) Basically the government’s finances are going to be squeezed just like they were in the Chretien era, except this time we’ve got all the tariff troubles layered on top of that.

It’s not going to be an easy decade.

Hard to justify the Liberals proposed increase in military spending (over $170bn) in an era of austerity. Especially if sums of that money just boost the bottom line of American defense contractors.

If the Liberals are so certain that we’re under threat from Russia or China, they should just pursue a nuclear weapons program.

There’s some common misconceptions at play when people say Carney is pushing a turn towards „Austerity“ and away from Trudeau’s „runaway spending“.

First, Trudeau was not nearly as spendthrift as people think, even in the 2020’s when the deficit really took off.

Let’s start with a little bit of context: Canadian fiscal policy is a little bit messier than that for a lot of countries because of being so tied into the American economy. If you taxes get too far higher than America’s, it’s far harder for a Canadian company to survive than it would be for, say, a French or Polish one that doesn’t face the same competition from a company that has CUSMA/NAFTA levels of access. Likewise, if the Canadian state fails to offer at least comparable services to America, we start to face major decline in capacity or labour force competition. That means our deficit will always to some extent reflect America’s.

With that in mind, Trudeau’s economic policy was downright Scrooge-like in its restraint – at least in the global context. During his tenure, Canada had the lowest deficit to GDP ratio in the G7, and with the exception of Germany it was never even close. In 2023, Canada’s was between <0.5-2%, depending on how you measure. This compares to Germany at 2.3-3%, the UK at 4.4%, and Japan, France, Italy, and the United States, each at 6-7% (in other worlds, 6-7 cents of every dollar spent in their economies was government deficit spending(!!!)). This while America every four years started setting new peacetime records in deficit to GDP ratios of debt accumulation.

Proposals to deviate from this is what prompted Freeland to resign.

Then there’s Carney’s supposed „Austerity“. He’s proposed no such thing.

Austerity refers to a policy where a government narrows the deficit by cutting spending and/or raising- or at least freezing – taxes. The effects of Austerity are usually some form of economic contraction in the short term as both private and public spending decrease. The goal with an Austerity policy is that efficiency will mean the deficit will reduce faster than the economy slows, and in the medium term that will spur more healthy economy growth or at least a sustainable economy.

None of this describes Carney’s policies. He has cut taxes and is proposing big increases in spending.

Carney has cut tax because, see point one, he knows Canada cannot impose *too* much more of a burden than America does. While he will balk at running a Trump style YOLO-Peronists-only-have-rookie-numbers deficit, he understands the need to take some fiscal hits to not fall too far behind.

He is also proposing a significant increase in government expenditures, especially on housing, infrastructure, and defense.

What some people call „Austerity“ is Carney redirecting spending from some current operating programs, including Crown corporation support, to new spending priorities.

Significantly, Carney is *not* proposing cuts to Canada’s biggest social spending programs: OAS and social and health transfers to provinces, which together add up to well over half of all government spending. Cuts in these areas would normally be expected as part of any real „Austerity“ drive.

The overall effect that he is aiming for is a degree of deficit fueled economic expansion, which has its own pitfalls. Given America’s goal to double their debt in 10 or fewer years, though, he doesn’t really have much of a choice.