Understanding the Nature of Canada’s Fiscal and Economic Challenges

The Trudeau government was first elected in 2015 based in part on a new approach to government policy, which promised greater prosperity for Canadians based on short-term deficit spending (totaling $25.1 billion over three years), lower taxes for most Canadians (except higher-income earners) and a more active approach to economic development. This new policy direction stood in stark contrast to the consensus of the previous 20 years. The result has been a marked deterioration of the country’s finances, economic stagnation and a collapse in business investment. If Canada is to restore its fiscal and economic health, Ottawa must enact fundamental policy reform.

There’s reason for optimism, however, since many of Canada’s challenges are of the federal government’s own making. The Chrétien Liberals in the 1990s faced many of the same challenges that we do today. By shifting the focus to more prudent government spending, balanced budgets, debt reduction and competitive tax rates, the Chrétien Liberals—followed in large measure by the Harper Tories—paved the way for two decades of prosperity when Canada outperformed other OECD countries on economic growth, job-creation and business investment.

To help foster greater prosperity for Canadians today, the federal government can learn from the Chrétien Liberals, and the experience of the Harper Tories. The rest of this essay series will identify policy options that can increase living standards for Canadians by repairing federal finances, improving tax competitiveness and lowering economic barriers. These reforms could help build a more prosperous country through the creation of good jobs and rising incomes for Canadians.

Jake Fuss and Jason Clemens are economists with the Fraser Institute and the coordinators for the Federal Reform Series, which provides practical solutions to many of the most pressing economic challenges facing Canada today. The Series editors are Lawrence Schembri and Jock Finlayson who jointly hold the Peter A. Brown Chair in Canadian Competitiveness.