Addressing the Affordability Crisis

Addressing the Affordability Crisis: A Call for Fiscal Balance and Right-Sized Government
Written by Kristen Duever 

In the face of mounting public debt and an affordability crisis, the London Chamber of Commerce, in collaboration with the Chatham-Kent and Atlantic Chambers of Commerce, has authored a policy paper entitled “Addressing the Affordability Crisis by Getting Back to Fiscal Balance and Right Sizing Government.” This paper will be presented at the Canadian Chamber of Commerce AGM and Convention in Halifax this October, offering recommendations for sustainable fiscal policies to safeguard Canada’s economic future.

The Growing Challenge of Public Debt

The COVID-19 pandemic caused public debt to surge globally, with Canada being no exception. Despite the end of the pandemic, Canada’s public debt as a ratio to GDP remains elevated and is expected to persist as a key challenge for policymakers. The federal government’s latest budget reflects this concern, forecasting continued deficit spending and a rising public debt, without a clear strategy to restore fiscal balance. Interest payments on this debt now consume an increasingly larger portion of the budget, limiting the funds available for essential services such as health care, education, and infrastructure.

Impact on Canadian Families

For many Canadian families, the affordability crisis is a pressing issue, and taxes have become the single largest household expense. A recent study highlights that taxes represent 45.3% of the average Canadian family’s income, outpacing essential costs such as food, housing, and clothing. With families paying more in taxes than on basic needs, there are growing concerns about the sustainability of Canada’s economic model and the pressures it places on households.

The Struggling Private Sector

Canada’s private sector, a key driver of economic growth and job creation, is struggling. Economic indicators, such as business investment, entrepreneurship, and employment rates, are all lagging. Since February 2020, government job growth has outpaced private sector job creation, with public-sector employment rising by 11.8% compared to just 3.3% for the private sector. This imbalance highlights the need for policies that foster private-sector growth to ensure long-term economic sustainability.

Consequences of Persistent Deficit Spending

The government’s approach to managing public debt includes introducing new taxes, such as an increase in the capital gains tax and the Digital Services Tax. While these measures aim to fund government spending, they may have unintended consequences on business investment, job creation, and overall economic growth. Canada already levies one of the highest corporate tax rates among G7 economies, and additional taxes could further discourage investment, a critical factor in driving productivity and economic competitiveness.
Increased borrowing to finance government programs without a clear repayment plan has put the country on a path where debt servicing costs are expected to surpass GST revenues by 2028. Alarmingly, the National Bank of Canada estimates that interest payments on the debt will exceed transfers to provinces through the Canada Health Transfer for the first time in over a decade. These interest payments represent lost opportunities to fund critical initiatives such as affordable housing, innovation in the green economy, and improvements in healthcare.

A Call for Fiscal Responsibility

The paper outlines a series of recommendations aimed at restoring fiscal balance and right-sizing government. The primary goal is to bring Canada’s debt-to-GDP ratio down to more manageable levels. This would involve capping the debt-to-GDP ratio at 30% during periods of growth and no more than 40% during times of economic downturn. The paper also calls for a moratorium on new federal hires until fiscal balance is restored and recommends a comprehensive review of government expenditures through independent and internal audits.
One innovative proposal is the implementation of a cash pooling arrangement across government departments. This would allow for the reallocation of surplus funds to pay down debt or finance other departmental projects, reducing the need for additional borrowing.

The Road Ahead

Canada’s post-pandemic recovery may take time, but modest levels of growth are forecasted. Achieving long-term sustainability requires delivering better value to Canadians while fostering private-sector growth. By focusing on fiscal responsibility and reducing the tax burden on families and businesses, the government can ease the pressures facing Canadians while creating opportunities for future growth.

The policy paper being presented at the Canadian Chamber of Commerce AGM in Halifax is a call to action. It emphasizes the need for fiscal prudence, an independent review of government spending, and a renewed focus on driving private-sector growth to maintain the quality of life Canadians expect. Only through a balanced approach can we ensure that government services remain sustainable and accessible to all.

Read Full Paper Here