The Liberal government remains intact after surviving a second confidence vote tied to its budget — but questions are mounting over whether that budget rests on realistic economic assumptions. The debate comes as Canada posted stronger-than-expected job numbers this week.
Speaking with David Cochrane on CBC’s Power & Politics, economist Don Drummond, a fellow in residence at the C.D. Howe Institute, criticized the budget’s growth forecasts and investment assumptions, saying the government is overselling its outlook and under-estimating the scale of the challenges ahead.
Budget outlook: Optimism vs realism
Drummond wasted little time in sounding a note of caution. “I don’t think it’s realistic at all,” he said of the budget’s economic chapter, adding that while the government soundtrack is upbeat — “don’t worry, be happy” — the reality for Canadians is much tougher.
He pointed out that while the budget acknowledges difficult near-term conditions, it then projects a rapid return to stability in years three through five. “They show a rough economic and employment picture this year and next year,” Drummond observed. “But year three, four and five, it gets back to a pretty normal stable one.” He argued that this bounce-back scenario is implausible given the structural change Canada now faces, including weakened trade access and low business investment.
Private-investment assumptions called into question
A major plank of the budget is its assumption that up to $1 trillion in private investment will be unlocked by targeted government infrastructure spending and tax incentives. Drummond was skeptical. “The one trillion is not just from what’s in this budget or done recently… Who knows if that’s real?” He emphasized that Canada’s business investment record is weak: “We’re investing one-third the amount of money in machinery equipment per worker as is happening in the United States… That’s the mountain that’s standing right in front of us.”
Despite the government’s claim that Canada now has the lowest marginal effective tax rate in the G7, Drummond pointed out the disconnect between favourable tax metrics and under-whelming investment outcomes. “We have to do something more extraordinary,” he said. “Just saying … we have a competitive regime obviously hasn’t done it in the recent past and is not going to do it in the near future either.”
On borrowing, versus peers
While the former Governor of the Bank of Canada David Dodge said the budget was “a move in the right direction,” Drummond agreed with the growth-focus but stressed that the plan falls short. “There are some things that will be helpful … My point is they just don’t go far enough.” He would have preferred one robust package, rather than a sequence of smaller measures. “Why not here? … I thought this was kind of it rather than we’re going to see a sequence.”
Structural headwinds, not just a cycle
Drummond also questioned the government’s framing of current troubles as cyclical, arguing they are structural in nature. “This has rocked the very entity of the Canadian economy … To me, this feels a much greater degree of unknown and frankly a lot scarier … Structural, not cyclical, and maybe permanent rather than temporary.” In his view, the expectation that “a couple of weak quarters and then life’s great again” is too sanguine.
Outlook
While the budget includes modest moves toward growth and investment, Drummond’s message is clear: don’t expect a quick fix. He cautions that the government has set high expectations with rhetoric of transformation, but the underlying measures do not yet match the ambition. If the economic and investment engines don’t rev up, he warns, Canadians may face a more prolonged drag on growth, business investment and job creation than the budget suggests.
TCE
