‘It’s an austerity and investment budget at the same time. And that is possible if we’re disciplined,’ Prime Minister Mark Carney said.Spencer Colby/The Canadian Press
The federal government will present both an austerity and investment-focused budget this fall, Prime Minister Mark Carney said on Wednesday, as he criticized the sharp rise in spending under his predecessor’s watch.
Mr. Carney set expectations for the spending plan, which the government plans to release in October, at the start of a two-day cabinet meeting in Toronto.
“It’s an austerity and investment budget at the same time. And that is possible if we’re disciplined,” he said in French, responding to a question on whether the government’s spending review means it’s planning an austerity budget.
“The rate of federal government spending over the last decade is more than seven per cent year over year. It’s faster than the rate of growth of our economy,” he added.
The Prime Minister said that style of fiscal management at the federal level needs to stop.
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Mr. Carney‘s comments stand in sharp contrast with the former Liberal government’s approach to fiscal policy. Former prime minister Justin Trudeau won the 2015 election on an anti-austerity platform and largely brushed off calls to rein in spending, resulting in a sharp increase in the size of the federal government.
Kevin Page, the president of the Institute of Fiscal Studies and Democracy at the University of Ottawa and a former parliamentary budget officer, said Mr. Carney is signalling that a significant reallocation of government spending is on the way.
“On the one hand, it’s going to look like austerity, because we’re going to see the first tranche of spending-review cuts, I suspect, in the budget,” Mr. Page said. “And on the other hand, the Prime Minister … is committed to these new spending priorities and they’re enormous.”
He added that Ottawa’s planned cuts wouldn’t be austerity in the traditional sense because they wouldn’t reduce the overall size of the government.
Finance Minister François-Philippe Champagne requested this summer that ministers submit plans by the end of August to reduce program spending by 7.5 per cent in the fiscal year that begins April 1, 2026, followed by 10 per cent in savings the next year, and 15 per cent in the 2028-29 fiscal year.
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The spending review is part of Mr. Carney’s promise to balance the operational budget – which he said would reflect the government’s day-to-day spending – in three years.
Ottawa would continue to run deficits to finance what Mr. Carney has described as investments, such as military and infrastructure spending.
Asked if there were any areas of government that would not be touched by cuts, Mr. Carney said on Wednesday that health care spending, education transfers and transfers to individuals would not be affected.
Tyler Meredith, former head of economic strategy and planning for Mr. Trudeau and former finance minister Chrystia Freeland, cautioned against reading into Mr. Carney’s use of the word austerity.
“I don’t think we should take anything away from this until we see the actual budget,” he said, adding that the government plans to phase in cuts over time.
However, Ottawa’s reorientation of priorities will likely lead to some public service layoffs, Mr. Meredith noted, given that the government won’t be able to move all workers affected by the cuts to other departments.
“We should expect that there will probably be some churn in the public service that will cause some disruption,” he said.
Conservative Leader Pierre Poilievre criticized Mr. Carney for failing to cut any government spending since he took office earlier this year, and warned the upcoming budget will include a deficit larger than that of Mr. Trudeau.
Economists expect a number of factors to push the federal deficit higher still, including Canada’s commitment to meet the new NATO defence-spending target, the Liberals’ election promises and a slowdown in economic growth.