Prime Minister Justin Trudeau and his cabinet have been hit with a tsunami of dire economic predictions while on their retreat in Hamilton.
It began on Monday with a report co-authored by former Bank of Canada governor David Dodge for the Business Council of Canada.
It warned that the Trudeau government’s current fiscal plan may be too optimistic, which could contribute to Canada facing a deeper recession with prolonged higher interest rates.
The report, “Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan” said the Trudeau government is facing three major risks:
First, that it underestimated the amount of money it will need to fulfil its political promises and that doing so may require $60 billion in additional spending and the taking on of more public debt.
Second, that it may not be possible to get the Canadian inflation rate down to 2% by the end of 2024, without higher interest rates in 2023 and a deeper recession.
Third, that supply chain constraints may become a permanent fixture of the Canadian and global economies, resulting in prolonged high interest rates on an ongoing basis.
“All things being equal,” the report concludes, “the more the government takes from its revenues to finance its debt, the less it has to finance crucial services and social programs for Canadians, or transfers to provinces for programs such as health care and education.”
On Tuesday, three more economists gave the Trudeau cabinet a series of similar warnings — the recession this year may be deeper than previously forecast, with higher unemployment and high interest rates and inflation.
Given such a weak economic environment, they cautioned the government against committing to major new spending programs, further deteriorating the nation’s finances.
The Trudeau government says that while 2023 will be a tough year economically for Canadians, it still has the necessary fiscal room to fulfil its major spending commitments.
But the concern, given the Trudeau government’s record of runaway spending — even before the pandemic hit in 2020 — is whether it has the discipline to prioritize spending for services Canadians need, as opposed to the things it would be nice to have.
Because if it can’t make those distinctions, it will deepen and prolong the looming recession.