Helaina Gaspard is director, governance and institutions, of the Institute of Fiscal Studies and Democracy at the University of Ottawa

My grandmother would often remind us of an Arabic saying that loosely translates to “all new things shine with appeal.” That's what makes budgets exciting. The 700-plus page 2021 federal budget has something shiny for everyone, with spending that runs the gamut from a national child-care strategy, to science and innovation, to festivals, to an increase to Old Age Security—the list goes on. 

Big announcements and policy changes may be appealing, but a budget is more than spending, surpluses and deficits. It is a government's vision of the role of the state.

Through some combination of ideology and context, this government is proposing roughly $135 billion in new federal spending over the next five years (when 2020-21 spending is included, the figure grows to $143 billion).  This new outlay is on top of the existing annual spending base (as a point of reference, the base was approximately $340 billion in 2019-20) and the $345 billion in COVID-response focused expenditures.  The 2020-21 deficit is $354 billion, with a debt-to-GDP ratio of 49 per cent. This spending increase is justified by the government through low interest rates.

Governments running deficits in election years have been found to be just as likely to be returned to power as those running surpluses. But while eye-popping spending numbers draw attention, governments succeed or fail on how effectively they put that money into action—that is, how they manage the expensive programs and operationalize their ideas.

To assess the government's budget plan and unpack its vision of the state, I've slightly modified the three-part expenditure framework devised by Allen Schick of the Brookings Institution, a world authority on budgeting and fiscal theory.

Part 1: Aggregate fiscal discipline

Are your economic and fiscal assumptions reasonable? Are the proposed revenue and spending plans sustainable, even if circumstances change?

Budget 2021 assessment: The economic assumptions presented in the budget are optimistic, leaving little room for changes in context. It was positive to see scenario modelling in the annexes demonstrating impacts of a slower recovery, versus a faster one, versus the assumptions for Budget 2021. There are however, no fiscal guardrails in place, and no fiscal anchor beyond a declining debt-to-GDP ratio. With reliance on optimistic revenue and economic projections, a path to rebalancing spending for long-term sustainability is necessary.

Part 2: Allocative efficiency

Do your spending decisions reflect your political commitments?

Budget 2021 assessment: This budget is part ongoing crisis-response to the pandemic, and part focus on people through economic participation and equity. As an election budget, there's a little something for everyone.   

The government has signalled its commitments to women, families and children through the National Early Learning and Child Care Plan; to the environment through several initiatives; and to addressing inequities for marginalized groups through initiatives in housing, Indigenous affairs, among other things. New revenue measures focus on luxury items and the Digital Services Tax.  The government's approach is consistent with areas of focus from its last Speech from the Throne.

Tucked in the annex are 170 pages of alignment of proposed budgetary measures to the Quality of Life Framework for Canada.  This framework is consistent with the government's past commitment to budget for well-being (as is the practice in New Zealand and Scotland). The government does demonstrate how its proposals fit with its vision of well-being for Canadians.  But there are gaps to close on defining a clear goal for the proposals, providing indicators for measurement and offering clarity on oversight to ensure goals are being achieved.

The government's vision is not a remaking of the state.  There is the potential for transforming childcare with the national strategy, although this will depend on federal-provincial cooperation. Many of the other initiatives are relevant, but will not transform an economy or a country overnight.

Part 3: Operational efficiency

How will you know your plan worked? How will you measure results?  How will value for money for taxpayers be ensured?

Budget 2021 assessment: Delivering results for public expenditure is arguably the biggest challenge for a government. It is fun to cut ribbons and spend money, but the real work comes in demonstrating outcomes and value for taxpayer dollars. That's why implementation matters.

We know programs, like institutions, have a tendency to persist on their course once launched. Implementation with consideration of the program or policy goal, resources and evaluation metrics must be defined and established appropriately at the front-end.  Cement dries quickly; once in place, change is difficult.

Consider for instance, the additional $1 billion in funding over six-years allocated to the Universal Broadband Fund. Connectivity is crucial, and building broadband infrastructure is costly. But has the existing base of the program been considered? Is the $8 billion already allocated to broadband insufficient, or is there difficulty getting the money out the door?  Is adding more money to the same delivery mechanism a solution?

Similarly, while the budget acknowledges that work on reforming First Nations child and family services is ongoing, there is an increase in funding to the existing program ($1 billion over five years, with approximately $119 million ongoing).  Without changing the underlying funding structure, outcomes for children will not change.  Throwing more money at the system will not alone change results.

The billions of additional science and innovation spending is exciting. But the impacts of such spending are unclear, especially when added to the billions already being spent. Prior to the 2017 budget, an assessment of skills and innovation spending demonstrated that billions of it was unaccompanied by clear performance metrics. Before new money is spent, the existing base should be reviewed to ensure taxpayers are getting value. 

Conclusion

The government has defined its vision of the state through broad spending, some of it, ongoing. The fiscal allocations and policy proposals have been made. Assuming parliamentary approval of the budget, the focus of the government must shift to implementation. Linking resources to outputs and outcomes is necessary to demonstrate competency and capacity to spend big.

There is a window of opportunity to take the excitement of new promises and spending and make them work for Canadians. All new things may shine with appeal, but we must take care to ensure they’re worth the money.

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A modern Liberal budget is typically replete with self-congratulatory blurbs that describe how an appropriately diverse cross-section of Canadians, with bolded first names like Sam and Natasha, are flourishing because of the federal government’s policies.

In the 2021 document released Monday, those blurbs are fewer and farther between. And they look a little different: Maria has been out of work. Dorothy and Stan had to shut down their storefront. Tim wishes he knew how to get started with e-commerce; his business has been suffering. But because of Liberal decisions, the document assures us, they’re going to be able to get by. (And, implicitly, they would’ve been worse off had certain others been in charge.)

Despite the predictable smugness, there is plenty acknowledgement of the pandemic’s uneven economic impact—”the bitter harvest millions of Canadians have reaped,” as put in Finance Minister Chrystia Freeland’s foreword. But there is also a sense of optimism—even a sense of certainty—that we’ll be out of the woods by this fall, and that the reopening of the economy will provide an opportunity to address the inequities laid bare during the crisis.

In the short term, the budget proposes renewing or extending a slate of existing supports.

The Canada Emergency Wage Subsidy, which has already provided $73 billion to businesses, would be extended beyond June until the end of September, costing about $10.1 billion. Starting in July, the subsidy rate would gradually decrease, “in order to ensure an orderly phase-out of the program as vaccinations are completed and the economy reopens.” From June until November, a new “Canada Recovery Hiring Program” would apply to employers that continue to see lower revenues than they did before the pandemic. The subsidy would offset the costs of reopening, including the cost of hiring more staff. (Employers—like Dorothy and Stan, by the way—wouldn’t be able to claim both benefits at once.)

The Canada Emergency Rent Subsidy and Lockdown Support would be extended in much the same way, with the rate of subsidy starting to decrease at the beginning of July and the last payouts coming at the end of September. This would cost $1.9 billion.

Under the budget plan, income supports would also continue for people out of work. The Canada Recovery Benefit will be available for an additional 12 weeks, through to the end of September. For the first four weeks, the benefit would be a weekly $500; then it would be downgraded to $300/week for the remaining eight weeks. The Canada Recovery Caregiving Benefit would be extended an additional four weeks at $500/week. All of this would cost about $2.5 billion, allocated over two years.

The government says it will seek legislative authority to extend all of the programs through November, in case its timeline turns out to be too optimistic by a couple of months.

It’s in their vision for what comes after that that we begin to see what the Liberals have meant by their promise to “build back better.”

The headline policy is a move towards a Canada-wide early learning and child care plan, something this government has long promised and that has only gotten more urgent during a pandemic that saw women disproportionately leaving the workforce. (Read our coverage of that here.) Another headliner is a $15 federal minimum wage proposal, which would affect some 26,000 workers in the federally-regulated private sector who currently make less than that. But there are other significant investments meant to mitigate the disproportionate effect of the pandemic on other groups, especially young people and racialized Canadians.

For students, the government would extend the interest waiver on loans until March 2023; it would increase the threshold for repayment assistance; and it would lower the cap on loan payments to 10 per cent, rather than 20 per cent of household income. Canada Student Grants would continue to be doubled until the end of July 2023. Adult learners who go back to school would have their grant top-ups extended, too. There’s also increased funding for the Student Work Placement Program, the Youth Employment and Skills Strategy, the Canada Summer Jobs program and non-profit organization Mitacs.

Another major tranche of spending focuses on training and recruitment. A new “Sectoral Workforce Solutions Program” would deliver training to an estimated 90,000 workers in “sectors where employers are looking for skilled workers,” including health, clean energy and construction. Forty per cent of the workers would be from underrepresented groups, the budget document says, including women, persons with disabilities and Indigenous people. The program would cost $960 million over three years.

Two more new programs—an “Apprenticeship Service,” a “Skills for Success” program —would connect apprentices to employers and fund literacy and numeracy training, respectively. A third, the “Community Workforce Development Program,” would deliver funding to “high potential growth organizations” through calls for proposals, helping them to train and hire workers. There are incentives here, too, for hiring from underrepresented groups.

For low-income earners, Liberals are proposing that the Canada Workers Benefit be extended to support about one million additional Canadians. They also propose allowing secondary earners to exclude up to $14,000 of their working income when income-testing for the benefit as a household. (That’s what would help Maria, per the blurb.) These changes would, the budget says, provide $8.9 billion in supports over six years, then $1.7 billion per year on an ongoing basis.

With 3.3 million Canadians accessing employment insurance since last fall, the Liberals are also proposing an overhaul of the system to make it “more accessible and simple,” including simplifying benefits for people with multiple jobs and allowing claimants to receive benefits sooner. It proposes spending $3.9 billion over three years to accomplish a list of changes, plus another $5 million over two years to launch a consultation on longer-term reforms and $99.9 million over three years to add benefits for seasonal workers. The feds also plan to make good on a pledge to increase EI sick leave benefits from 15 to 26 weeks. The budget allocates $3 billion over the next five years for that purpose, then $967 million per year ongoing. The change would only take effect next summer.

Getting whiplash yet? We aren’t done. For small and medium-sized enterprises, the budget proposes the “Canadian Digital Adoption Program,” which would help businesses with e-commerce, through micro-grants and support from a network of 28,000 young Canadians who would be trained and hired to provide help. (That’s for Tim.) A second stream for “off-main street” businesses, like manufacturers, would receive advice on technology planning and financing. The program would cost $4 billion over four years.

There is a long list of further investments designed to provide venture capital, boost exports, encourage “innovation,” lower inter-provincial trade barriers and support entrepreneurs, with specific entrepreneurial programs for women and Black Canadians.

It is difficult to imagine the rollout of all of these policies, and the magnitude of all of that money, when the finance department officials who worked on the budget, and the reporters who are writing about it, are all stuck in their living rooms. (Let alone the wide breadth of other measures that the very long document proposes.)

As they try to sell this budget—this catalogue for what Canadians can expect if they elect another Liberal government—Freeland and her colleagues will need to find a way to project the document’s own optimistic tone about our path to the other side. Even while much of the country is locked down, they must try to convince the in-the-flesh Tims and Marias of the world that this is almost over. They may find a willing audience.

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Maybe we should begin by eliminating some straw men.

1. There’s nothing in Chrystia Freeland’s first budget that seems either designed or likely to force a no-confidence vote from enough opposition parties to force an election. If Justin Trudeau wants an election, he’s going to need to visit Rideau Hall, or wherever they’re keeping the temporary Governor General these days, all by himself. I suspect he doesn’t want an election. So we won’t be having one soon.
2. There will be much excellent analysis of all the spending and all the deficit and debt that come with it. I don’t think the spending in itself is a crisis. I know you’ll be able to get enough hand-wringing over deficits from other pundits so I won’t add any of my own here.
3. Freeland’s budget is not a “build back better” extravaganza unmoored from the reality of a still-acute global health crisis. Any attempts to repeal capitalism as part of a “Great Reset” remote-controlled from Davos are somewhere between extremely tentative and non-existent. After a year of hoping, sometimes to an unseemly extent, that they could transform a hellish pandemic into a progressive heaven, the Trudeau Liberals seem to have decided they must simply govern instead.

The result is more or less the budget you would have expected, plus child care. I’ll get to the child care part in a moment. It’s big.

Otherwise, most of the budget’s big new spending simply extends last year’s big spending on income support, because the coronavirus is still with us. There’s $10 billion in 2020-21 to extend the Canada Emergency Wage Subsidy; $9.6 billion in 2021-22 to enrich the Canada Recovery Benefit and regular Employment Insurance; billions more in assorted measures to replace job income for people who can’t do their jobs. This is what dug the government into its very large deficit hole. It made sense to do this stuff. And it does not yet make sense to wind those programs down.

At a smaller scale in dollars, there’s a lot of effort to ensure Canadians head into the post-pandemic world with the skills and business capabilities they need to succeed. The dollar amounts are modest-ish. There’s $4 billion over four years to recruit 28,000 young Canadians to help small businesses adopt new technology. I’m curious to see whether that money winds up getting spent. How many businesses will agree that what’s on offer from Ottawa matches their business plan? A federal official we’re not allowed to name was very excited when describing all this stuff to reporters, but this is not our first skills rodeo. Making the offer match the need is a challenge that has vexed governments for longer than I’ve been in Ottawa. Hope for a better result springs eternal. But there are reasons why the earlier attempts didn’t work.

On to child care. The pandemic revealed a gap in Canada’s social programs, Freeland says, one that previous Liberal governments had promised to fill and one on which Trudeau’s government had made listless, modest progress. Those days are over. This budget provides $30 billion over five years, leading to a steady spend of more than $8 billion a year forever after, for “early learning and child care.” It’s by far the biggest new spending item in the budget. The devil will be in the details. There are many details.

First, I now officially haven’t the faintest idea what Justin Trudeau meant when he wrote to his new finance minister three months ago telling her she “will avoid creating new permanent spending.” She sure didn’t do that. One suspects he won’t mind. Public officials should be reluctant to make it this clear their instructions have no meaning.

Second, the point of the “no new permanent spending” charade was that the provinces, unanimously, have specific ideas for new spending. They’d like $28 billion a year in new health transfers. It’s a ludicrous sum but directionally a perfectly fair request. As Quebec’s François Legault points out, the most obvious gap the pandemic revealed is a shambles in long-term care, and once he hires more long-term care workers, he’ll be expected to pay them every year. Similarly, intensive-care capacity won’t stop being a problem after COVID; it was already a problem before the outbreak; and it’s likely to be aggravated over the medium term by all the diseases and conditions whose routine treatment got elbowed aside by the pandemic.

Since it became clear the premiers were unanimously and reasonably calling for increased health transfers, they’ve had three answers from Ottawa: “No;” “we’ll give you $3 billion a year for public transit;” and “we’ll give you $8 billion a year for daycare.” No federal government is ever obliged to do what provincial governments demand. But child care will mostly be administered by provincial governments, so the disagreement over the best use of the next transfer dollar is not merely academic. It’ll directly affect the tone, and perhaps the success or failure, of necessary negotiations on program design.

Incidentally the feds like to brag that they’ve hosted 29 conference-call simulacra of federal-provincial conferences over the past year. The point of all those calls is hardly obvious. What’s going better in federal-provincial relations these days?

Very big questions of program design will need to be crunched. Will for-profit childcare centres be eligible? The budget document suggests some will. Advocates of not-for-profit care may be highly displeased.

I wonder what welcome a new child-care solution will receive among parents who don’t work schedules that fit well with daycare operators’ schedules. All the evidence suggests there’ll be more such parents in the near future than there already were. And finally, there is unpopular but serious academic research questioning the developmental benefits of the Quebec daycare model.

I suspect the answer to such criticisms will be that there’s a consensus in favour of child care; that Ottawa’s money offer is substantially non-negotiable; and that provinces mustn’t look gift horses in the mouth. Many will accept the offer, some with more or less enthusiasm than others. I wonder what they’ll say about this budget’s claim that Ottawa is offering to pay for half of the new program, given that the basis of their health-care demands is that Ottawa once paid for half of health care and has lately been covering less than a quarter.

Anyway I’m also not sure we’ll be talking about any of this in two years. Previous depositories of the Prime Minister’s enthusiasm—pharmacare, the Canada Infrastructure Bank, the innovation superclusters—are now mired in delay or indifference. This Prime Minister didn’t finish a lot of projects in life before he moved to Ottawa, and his inexhaustible affection for new projects will be tested if he keeps the job long enough for this project to become less thrilling.

The last thing worth saying about this budget is that it’s actually not particularly loopy. The things Trudeau and Freeland focus on here are the sort of things a government like Canada’s should be working on right now. A couple weeks ago the OECD, the economic club Bill Morneau once hoped to run, released evaluations of member states’ economic prospects and policy choices. The page for Canada said we’d do well to “strengthen support for vulnerable households;” “increase the labour-market participation of women;” “reduce barriers to internal trade;” “reduce barriers to entry for both domestic and foreign suppliers” by increasing competition and reducing regulation; “eliminate inefficient tax expenditures;” and increase carbon prices.

By my reckoning, the government is hard at work on support for vulnerable households, labour-market participation of women, and carbon prices. It’s doing very little on the rest. Let the debate begin on whether this budget is a triumph or disgrace. From where I’m sitting it’s kind of middling.

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The last budget Bill Morneau ever delivered, just months before the 2019 election, contained $22.8 billion in proposed new spending—and a mere $4 billion that would be doled out that year. Morneau had no plan to balance the budget, and the deficit was projected to balloon to nearly $20 billion. Conservatives griped that Liberals had turned their 2015 promise to eliminate deficits into a joke. Liberals bet big on voters turning a blind eye to red ink. Now, as Finance minister Chrystia Freeland drops her first budget plan, the scale of those spats feels almost quaint. This year’s sprawling tome is packed with $142 billion in new spending over the next five years, and accumulated deficits of $686 billion in that span.

Morneau’s gamble allowed the Liberals to cling to power. No one really knows when voters will next head to the polls—that speculation changes by the day—but many of them will inevitably ask Freeland and her boss, Prime Minister Justin Trudeau, pointed questions about all of that red ink: How do Liberals intend to pay for billions upon billions in recovery spending? And can they really afford to dig such a deep hole?

Freeland’s speech acknowledged the enormity of what she was proposing for child care, long-term care, recovery benefits and dozens of other line items. In fact, she almost boasted about her government’s boldness. “In today’s low interest rate environment, not only can we afford these investments, it would be short-sighted of us not to make them,” she told the House of Commons. In the prepared remarks, “can” and “not” were bolded for effect.

Erin O’Toole, the Tory leader who might only get one shot to dethrone Trudeau, will insist the deficits are too unwieldy, federal debt will grow unsustainably and the only way to pay for everything is to create new taxes that pickpocket hard-working people who are still struggling against a deadly third wave of the pandemic (which he’ll say is all Trudeau’s fault).

O’Toole might co-opt the myriad fiscal and economic charts in Budget 2021 to bolster his case, but the government’s newest projections on revenue have impressively outpaced the estimates in last fall’s fiscal update. Anyone wondering how the feds can open the taps so liberally need only look in a mirror for the answer. We’re collectively sending billions to Ottawa it never expected to receive.

Last year, the Department of Finance expected to collect $1.3 trillion in personal income tax before the end of the 2025-26 fiscal year. A stronger-than-expected recovery added $46.3 billion to that haul in this budget’s projections. The Canada Revenue Agency can expect another $33 billion in corporate income tax over that period, too. The feds are also expecting to collect more GST and benefit from stronger crown corporation performance. That unanticipated revenue, combined with readjusted CERB projections, cuts $35.4 billion out of the 2020-21 deficit. That’s about 10 per cent of what’s now a $354-billion hole.

Finance officials revised revenue projections all the way until 2025-26—and it all added up to $92 billion in tax revenue they weren’t planning for five months ago.

Freeland is also proposing a spate of new taxes. A digital services tax on tech giants could bring in $3.4 billion over five years. A luxury tax on pricey boats and private airplanes could add another $600 million in that timeframe. Another tax on vacant, foreign-owned real estate adds up to $700 million in four years. The feds also plan to go after excessive tax deductions, tax evaders and tax avoiders. All told, the Liberal plan for a “tax system that promotes fairness” is projected to beef up the balance sheet by $8.3 billion before 2026.

Freeland will also emphasize, using the same rhetoric as her predecessor in his fiscal “snapshot” last July and her fiscal update later in the year, that low interest rates are allowing the government to take on billions in new debt that is still cheaper than the government’s comparatively modest pre-pandemic debt load.

The department is acknowledging, though, that interest rates will eventually rise, and debt-servicing costs along with them. The feds are also shifting their borrowing strategy substantially from short-term bonds—two, three or five years—to long-term issuances. And that includes $4 billion worth of “ultra-long” 50-year bonds, issued for the first time in several years. Last year, 71 per cent of bond issuances were of the short-term variety. Next year, that share drops to 56 per cent as the feds lock in low interest rates and push repayment down the road. (Just before the pandemic hit last year, then-U.S. treasury secretary Steven Mnuchin signalled waning investor interest in 50-year bonds.)

Trudeau first pitched temporary deficits in the summer of 2015. Four years later, having scrapped a plan to do away with red ink, he won a second term. His finance minister still has no path back to the promised land of debt reduction. If enough voters shaken by the pandemic and buoyed by relief programs have genuinely stopped prioritizing fiscal restraint over ambitious policy, the Liberals might romp to victory at their next opportunity. But it might be their biggest gamble yet.

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