Either the federal government and all provinces must begin cutting back the public sector and spending, or we will face another crisis like we did in 1995. Pictured: Prime Minister Justin Trudeau. Photo Credit: Justin Trudeau/X.
It was very clear that government size and spending increased substantially during the pandemic. After all, it was an emergency and one of those occasions on which even the most anti-government types had to concede that the role of government was essential. What is not as well known is that a couple of years past the pandemic’s end, government has not shrunk back to a more manageable size but continues to expand.
When a government expands excessively – usually taken to mean that it grows more than the growth in population plus inflation – it is always difficult to shrink it back to a more reasonable size. Unlike private companies which are largely at the mercy of markets and are forced to downsize when their stock price declines significantly or demand for their goods and services falls, governments can continue to grow as long as citizens tolerate tax increases and financial markets will finance their growing debt.
The only time in recent memory that any government shrunk significantly was in the mid-1990s when the federal government under former prime minister Jean Chrétien was forced to cut back as international financial markets refused to finance any more of our debt.
The extent to which Prime Minister Justin Trudeau has increased the size of the federal government has been well-publicized. For politicians who love big government, the pandemic was likely seen as a wonderful, justifiable opportunity to crank up government size and spending. Most recent data show that the Trudeau government has grown by about 40 per cent since 2015 in terms of number of employees. Every new program the government announces means another new bunch of government employees to administer it.
Estimates have shown that while the majority of governments around the world increased their spending during the pandemic, Canada hiked its spending by about twice the average of other countries. And we know from all of the illegitimate claims for CERB and other pandemic-related benefits to Canadians, much of this funding was dispensed by a firehose with little effective management from government officials. In addition, federal public services seem to have actually declined in quality despite all of this extra money spent.
While there has been some focus on the growth of the federal government, there hasn’t been much attention paid to what happened in the provinces. A recent Fraser Institute study delved into this question, and found that every single provincial government in Canada had shown excessive growth in government size. The study examined government employment as a percentage of total employment and total government spending as a share of the economy, between 2007 and 2022.
Not surprisingly, the Atlantic provinces had the highest government size relative to the economy with Nova Scotia taking the cake at a gigantic 63 per cent. As the Atlantic provinces are habitual recipients of equalization payments from other provinces (largely Alberta), it is not a shock that those funds get invested into ever-bigger government. The province with the smallest government size relative to the economy was Alberta with 26.8 per cent. In the period studied, public sector employment as a share of total employment increased in every province. For Canada as a whole, government represented 40.5 per cent of the economy by 2022.
This issue of constantly expanding government relative to the economy overall is vitally important because government never pays for itself and without a robust private sector, an economy is doomed to failure. Canada’s current serious economic problems are a direct result of too much investment into government and not enough into the productive private sector that funds government. Despite all of the wailing from the public sector unions and other leftists, so-called “austerity” in public spending has not been happening for quite a long time and our economy’s serious problems with productivity are a direct result of government spending crowding out private sector investment.
Our GDP per capita has not grown since 2015, and if this sounds rather esoteric what it actually amounts to in real terms is a decline in our standard of living. That is something all Canadians can understand. The pandemic-related spending that was said to be temporary seems to have worked its way into being permanent in government budgets. These are also some of the reasons why, if we don’t change direction, Canada’s economy is expected to underperform virtually all other developed country economies in the coming decades. Yes, decades.
Canada cannot continue on this path without major negative impacts on our lives. Either the federal government and all provinces must begin cutting back the public sector and spending, or we will face another crisis like we did in 1995. Yet the pressures against governments voluntarily shrinking their size and spending are powerful and very vocal.
Recently, the far-left Canadian Centre for Policy Alternatives suggested that municipalities should have their own income tax. This organization is funded by unions, and most unionized workers are employed by government as unions have effectively committed suicide in the private sector. It’s not surprising that these unions would like to put their hands on more of our tax dollars. This would lead to a debt build-up at the municipal level to add to the massive provincial and federal government debts, which is the last thing Canada needs. The only durable solution is for Canadian voters to support governments who commit to respect their tax dollars, keep government at the minimum size necessary to provide essential services, and incent the private sector to produce the wealth they are capable of if not held back by excessive government and the high taxes needed to fund them. Ultimately, bloated government is not in anyone’s interests.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
