Trudeau needs to turn off the emergency spending taps

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Aaron WudrickAs Canada slowly begins to emerge from a pandemic-induced shutdown, a severe economic hangover persists: a $343 billion deficit as of early July’s fiscal snapshot. In reality, it is certain to be even higher by the time newly-minted Finance Minister Chrystia Freeland gets around to preparing a fiscal update in the fall.

With a deficit of this size, there’s not a lot to be cheery about, but a small consolation may be that the vast majority of the deficit is a result of one-time emergency spending. If the government can actually bring itself to turn off the taps (a big if), it can swiftly cut the deficit by about two-thirds.

The early signs are not encouraging. While the government has finally committed to ending the $80 billion Canadian Emergency Response Benefit (CERB) after two extensions, its successor programs including more generous Employment Insurance (EI) payments and additional, temporary EI-like program will still cost $37 billion.

It was clear that CERB had to go. In addition to the massive expense, there were concerns (including, we have since learned, from erstwhile finance minister Bill Morneau) that it was undermining our economic recovery. As more businesses began to reopen, many employers were having difficulty getting employees to come back to work because many were taking CERB payments instead.

Government will also need to resist the inevitable calls for special bailouts, as there is simply not enough money to bail out every affected business or industry. All government can really do is ensure whatever support is on offer is fair and does not create explicit winners and losers. Tax relief is the best way to do this. Reducing rates across the board makes it easier for all businesses to survive without playing favourites.

Even more alarmingly, some voices have been calling to make deficit-financed emergency measures permanent, or even suggesting the government should try to dig an even deeper hole by proposing a massive expansion of expensive, inefficient government programs.

The word has become overused over the course of this pandemic, but it is true that the situation we are in is indeed unprecedented. Even so, we are now slowly moving towards a new normal.

But let’s be clear: the only reason we are not already in a full-blown fiscal crisis is because of low interest rates. Even more alarming, there is no consensus on why they have remained low for so long, nor about why or when they might start rising again. It would be foolish for the Trudeau government to act like gamblers on hot streaks at the casino by misinterpreting random good luck as a result of decisions within their control.

As it stands, it will take years to climb out of our fiscal hole. The Trudeau government needs to take the biggest first step by continuing to wind down emergency spending as soon as possible.

Aaron Wudrick is federal director of the Canadian Taxpayers Federation.

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By Aaron Wudrick

Aaron is a lawyer and the Director of MLI’s Domestic Policy Program. A graduate of the University of Waterloo (economics and political science) and the University of Western Ontario (law), he practiced litigation in his native Kitchener, Ontario, and then corporate law with a major international law firm in London, Hong Kong and Abu Dhabi, before returning to Canada to work as a political consultant and lobbyist. Prior to joining MLI, he spent six years as the national spokesperson for a prominent non-profit advocacy group. He lives in Ottawa.

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