Young Canadians could pay dearly for Liberals’ deficit-financed spending: report

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A review of federal spending has found that Ottawa's budget for skills and innovation is already approaching $23-billion a year and there is little reporting on what it achieves, a finding that raises questions about Liberal plans to spend more in this area in the 2017 budget.

The University of Ottawa's Institute of Fiscal Studies and Democracy, led by former parliamentary budget officer Kevin Page, is also expressing strong concern about the size of deficit-financed spending across the board during the first two years of the Liberal government.

"The magnitude of the government's two-year program spending increase is unprecedented in modern times," the institute states in a report released Wednesday, pointing to a 12-per-cent hike in government-wide spending over that period. The study said the lone recent exception was the 14.7-per-cent emergency spending increase that followed the 2009 financial crisis.

"Canadians should be concerned about ongoing deficit-financed activities," states the report on federal skills and innovation spending. "If interest rates increase or economic growth further weakens relative to planning assumptions, young people will be paying dearly for today's deficit-financed activities."

Finance Minister Bill Morneau's March 22 budget is expected to include a heavy focus on skills and innovation. The minister's advisory council on economic growth – which worked directly with the minister over the past year – made a wide range of recommendations for new spending and programs on innovation.

The institute's review found Ottawa already has 147 different programs and tax credits in this area worth a total of $22.6-billion. Examples include the $1.7-billion Canada Student Loans Program, $1.1-billion in grants and scholarships under the Natural Sciences and Engineering Research Council and the $207.7-million Youth Employment Strategy.

Mr. Page, who oversaw the research conducted by institute staff and economics students, said he was surprised to see how much is already being spent on skills and innovation. He said cabinet ministers need to look at these programs through the eyes of younger Canadians in order to be able to justify whether today's deficits are worth the long-term debt being imposed on future generations.

"Spending is way up," he said in an interview. Mr. Page said the government is right to make innovation and skills a priority for the long term, but it should be doing a better job of reviewing existing programs and justifying whether or not they are worth the billions currently being spent.

"If you're a millennial and you're seeing all this debt adding up, that for them probably means higher taxes down the road and maybe less services," he said. "So it really calls on the government to start reviewing [existing spending]."

Mr. Morneau did announce a review of federal tax credits in the 2016 budget and the result of that review was expected to be revealed in the 2017 budget. However The Globe and Mail reported this week that, according to sources, most of that review will not be concluded in time for this year's budget.

The Liberals were elected on a platform to boost economic growth by running short-term deficits of no more than $10-billion a year and to balance the books by 2019. However Mr. Morneau's Nov. 1 fiscal update estimated this year's deficit will come in at $25.1-billion and will rise to $27.8-billion next year. A finance department report released in December said Ottawa is on track to keep running deficits until the 2050s, though the size of the federal debt will shrink slightly over that period when measured as a percentage of economic growth.

The Globe and Mail asked Mr. Morneau Tuesday in the House of Commons foyer whether he was bothered by his department's forecast and whether his budget will include measures to erase the deficit sooner.

"We want to move forward on our agenda to continue to be ambitious in helping Canadians," he said. "We will do that while being responsible fiscally."