Title: Liberals Urged to Facilitate Economic Growth

For centuries, alchemists have failed to transform lead into gold. Despite repeated failures, these figures continued to rebrand their discredited schemes, enticing hopeful individuals with promises of miraculous outcomes. In a modern twist, Mark Carney, often referred to as the current alchemist, claims he can convert deficits into "investment." This notion echoes a long-standing promise from the Trudeau administration, now presented with new slogans like "spend less and invest more."

This approach is reminiscent of Justin Trudeau's earlier assertion that "the budget will balance itself," suggesting that deficits would generate enough economic growth and tax revenue to eventually balance the budget. Following the COVID-19 pandemic, the Liberals reiterated this promise, introducing the concept of a "Great Reset" aimed at revitalizing the economy through substantial debt-driven investments.

However, the results of this strategy have been disappointing. Over the past decade, Canada has seen its national debt double, while real investment per worker has decreased by more than 10%, marking the steepest decline among G7 nations. In 2024, investment per worker in Canada stood at $15,600, significantly lower than the $28,600 average in the United States and one-third less than the OECD average of $23,600.

The failure of deficits to stimulate investment can be attributed to two main factors. First, government debt is financed either through borrowing or printing money. Printing money can lead to inflation, while borrowing diverts funds from private investment opportunities. As a result, government deficits do not create net economic activity; they merely shift resources from productive investments to government spending.

A historical example from the 1990s illustrates this point. In Israel, high deficits forced the government to offer high-interest bonds, which attracted pension and insurance funds, stalling private investment. However, when Israel reduced its deficits and ceased bond sales, private investment surged, leading to a boom in venture capital and innovation.

Second, large government deficits often lead to future tax increases. This anticipation causes businesses and individuals to reduce their spending and investment, a phenomenon known as "Ricardian equivalence." Research has shown that in advanced economies like Canada, deficits can lead to decreased private consumption and investment.

Carney argues that government borrowing can fund significant economic projects that yield high returns. However, this raises two critical questions: If a project is viable, why does it require government funding? If it is not viable, why should the government invest in it? Large infrastructure projects can secure funding from private sources, such as pension funds, and generate revenue through user fees.

The need for government funding often indicates that a project may not be financially sound. Projects that consistently lose money can have detrimental effects on the economy. The current Liberal strategy resembles a business model that loses money on each sale but attempts to compensate through volume.

To foster economic growth, critics argue that the government must take a step back. Canada has some of the slowest building permit processes in the OECD and high taxes on investment. To unlock potential investments, the government should streamline permit approvals, eliminate capital gains taxes on reinvestments, and repeal restrictive resource laws.

With abundant natural resources, Canada does not need more promises of turning deficits into investments. Instead, it requires a government that allows businesses to thrive and workers to engage in productive activities, tapping into the economic potential that lies within the country.