Terence Corcoran: Liberal budget has Canada roaring backwards
Federal budget 2022: COVID policy has gouged a permanent hole in our current economic circumstances
In the opening aria of Finance Minister Chrystia Freeland’s 2022 budget performance Thursday in the House of Commons, the words of self-congratulation hit nothing but high notes. The Canadian economy, she intoned in a modest middle C introduction, has recovered from the COVID-19 recession brought on by government lockdown policies.
Canada has regained 112 per cent of the jobs that were lost during those awful first months, she sang. Unemployment is down. And, her voice rising, Freeland moved to the melodic heart of her budget speech. “Our real GDP is more than a full percentage point above where it was before the pandemic. Think about that: after a devastating recession — after wave after wave and lockdown after lockdown — our economy has not just recovered.”
Then, hitting a string of high Cs, Freeland voiced the greatest praise for Canada’s economic achievement. Canada, she sang, “is booming.” The Commons orchestra picked up the pace as her voice rose to the final words: “Today,” sang Freeland, “Canada has come roaring back.” Like many parliamentary opera scenes, in it was filled with fantasy, implausible plot twists and a fundamental premise that does not fit with the reality of Canada’s economic performance through the COVID-19 lockdowns and the current recovery circumstances.
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Freeland likes to claim, as she did in her December fiscal update, that Canada has “largely recovered” from the economic damage inflicted by COVID-19. “Our GDP has already returned to near pre-pandemic levels.”
That was not quite a full and fair accounting of Canada’s economic position. As one of the charts (#16, page 15) in her 2022 Budget demonstrates, real gross domestic product (GDP) is still running about two percentage points below the growth trend that existed before COVID-19. It also shows that Canada will continue for the next two years to lag behind where the country’s real GDP would have been before the lockdowns.
The nearby graph illustrates the dollar magnitude of the hole the COVID crisis has imposed on Canada’s real GDP performance. The total real GDP loss to the end of 2021 is $268-billion. Gregory Mason at the University of Manitoba, who compiled the dollar figures, said that GDP may be back to pre-COVID levels, but that’s where the economy was two years ago. “To restore the economy to the pre-COVID trajectory will require growth rates well above the pre-COVID levels.” For example, if the Canadian economy were to grow at two per cent per year, it would never catchup to the level it would have been had COVID not occurred. “With a growth rate of 4% (very rare in recent Canadian economic history and not sustained for long), we would catch up to the trend by October 2024.” Even the Freeland budget document does not envision that kind of growth in the years to come.
COVID policy has gouged a permanent hole in our current economic circumstances. At the same time, federal debt rose more than $400-billion and is set to go up another $250-billion over the next three years. It must be hard to keep a straight face while singing about boom times after having lost $268-billion in real GDP while net government debt will have almost doubled to $1.3-trillion by the end of 2026-7.
By claiming that Canada has recovered and is booming, Freeland and the government are glossing over the magnitude of the COVID economic hit and using the gloss to justify a budget and policy machine that greatly expands the role of government in the economy. All we need, say the Liberal/NDP leaders, is a lot more government intervention and more deficit spending to keep the roaring boom going. But Canada has been roaring backward since 2020, and Budget 2022 keeps economic and fiscal policy on the same track.
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