Indigenous programs and payouts help drive federal deficits

When Finance Minister Chrystia Freeland presented the federal budget, the most obvious fact was the size of the deficit. It came in at $40.1 billion, after having been forecast at “only” $30.6 billion in the fall economic update less than six months ago. What caused the deficit to shoot up $9.5 billion in such a short period of time?

Some analysts pointed to supply and confidence deal between the Liberals and the NDP, which has led to increases for health and dental care. Others pointed to lower-than-expected tax revenues caused by an unexpected slowdown in the economy. Both lines of analysis are correct, but many things can be true at the same time in the complex world of public finance.

In fact, commentators have overlooked an important cause of the rising deficit—namely, the government’s expenditure on Indigenous programs. The Indigenous spending total in fiscal 2021-22 was about $25 billion compared to more than $29 billion in 2023-24, an increase of $4 billion in two fiscal years. To put things in proportion, that $4 billion growth is equal to 40 per cent of the estimated increase in the overall deficit booked in the last five months.

Moreover, the ever-increasing cost of Indigenous programs has been an important factor in the deficits the Trudeau government has ran since taking office in late 2015. Earlier that year, the Conservative government brought in a balanced budget, and Indigenous spending in fiscal 2015-16 was about $11 billion. Under Liberal stewardship, it’s grown to more than $29 billion in Budget 2023, for an increase of roughly $18 billion. The government, which has the exact numbers, calculates the percentage growth as 156 per cent. Over the same period, the budgetary estimate of overall federal spending has grown from $289 billion to $497 billion, for an increase of $208 billion or 72 per cent. Thus, Indigenous spending has been increasing more than twice as fast as overall federal spending since 2015.

Another way to look at this picture is to note that Indigenous spending has increased by approximately $18 billion since 2015 while the deficit has gone from zero to $40.1 billion. Thus, the increase in annual Indigenous spending is equal to about 45 per cent of the federal deficit forecast in Budget 2023. Even though Indigenous spending comprises only about 6 per cent of total federal spending, its growth is having an outsized influence on the growth of the deficit. In simplest terms, the government is borrowing money to pay for all its promises to Indigenous peoples—hardly a good example of fiscal discipline for First Nations. Well-run First Nations, such as Fort McKay or Westbank, who always balance their books, could teach the Trudeau government a thing or two about budget discipline.

The meteoric rise of the Indigenous spending envelope is bound to continue because of commitments the government is making to pay reparations for alleged historical grievances. It started in 2007 with a $5 billion-plus settlement for Indian Residential Schools, followed by several other negotiated settlements for different forms of Indian education, piling up an additional $7 billion in payouts. But those settlements have been dwarfed by three others in different fields, adding up to almost $50 billion—child adoption (the so-called Sixties Scoop), drinkable water, and foster care (for an unbelievable $40 billion).

These payouts will all eventually go through the federal budget in the Indigenous envelope. They will be hard to track, because they’re spread over years as individual claims are filed and processed, and as related spending promises are implemented. But they will inexorably swell the annual spending total for Indigenous programs.

Other claims remain in the pipeline, such as a class action over the quality of care in Indian hospitals. And new claims are being filed every year as class action law firms exploit this new line of business. At this point, is impossible to estimate the total fiscal impact except to say that it’s huge.

Indigenous spending will continue to spiral out of control until the federal government develops a backbone and starts saying no to alleged historical grievances. We can’t afford to keep raking over the past, borrowing tens of billions of dollars to pay for claims of what allegedly happened decades ago when social mores were different.