The Liberals have redefined ‘restraint’ and ‘investment’

Freeland and Trudeau say they practiced fiscal virtues but they’re speaking a different language than the rest of us

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Ahead of last week’s Fall Economic Statement Justin Trudeau claimed his government has “always exercised fiscal restraint.” That will have sent many Canadians, whose tax money has been spent with astonishing rapidity over the past eight years, repairing to their dictionaries to check their understanding of the word “restraint.” There they would have confirmed their English comprehension is fine: restraint involves limitation, restriction and moderation. It is the prime minister who is wrong. The government hasn’t exercised fiscal restraint at all.

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With her boss misusing the word “restraint” in so unaccountable a fashion, Canadians won’t have been surprised by Chrystia Freeland’s similar misuse of — and misdirection around — the word “investment” in delivering the Fall Economic Statement. There is no need to run to the dictionary a second time: it is again the Liberal politician who is in error. Things Freeland claims are investments are not, and the actual productivity-increasing investments she would have us believe are taking place in abundance, businesses and investors have in fact been increasingly reluctant to make.

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Ms. Freeland begins with the claim that “major investments in public transit, in EV battery factories, and in new energy projects are not just red ink in our fiscal statement. They are truly investments.” The income statement is awash in red ink — $40 billion of it this year alone — but not because of anything that is truly an investment. An investment is a capital outlay that involves creating or purchasing an asset that provides long-term income generation or other benefits. When governments invest in capital assets, such as by building a new highway, the cost of the asset is capitalized and amortized over its useful life. Only the amortization expense is reflected in the annual statement of income, which means large, ongoing deficits can’t actually be blamed on making “investments.”

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Other things Freeland claims are investments, such as child-care spending, also clearly don’t fit the definition. Of course, although accountants are generally sensible and wise, they are not gods: accounting rules were invented by humans, not inscribed on the stone tablets Moses brought down from Mount Sinai. It is possible the federal government is spending on all sorts of things that really could be considered assets with long-term value, but which accounting rules do not allow to be capitalized.

But it would be easier for Liberals to argue their spending generates long-term value if they could show it generates value at all. Evidence that it does is lacking: health care wait times are longer than ever, real GDP growth per capita is the weakest in nearly a century, the federal takeover of child care has put the sector in crisis, economic productivity is declining, homeownership and rental costs continue to escalate as residential construction slows and, despite over $120 billion in climate spending and an onerous regulatory regime, the government is expected to miss its 2030 climate targets. Only the last, missing climate targets, is not entirely negative since achieving them would devastate the economy even more.

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Following her confusion about government “investments,” Freeland moves on to private-sector investment, boasting that “because of our economic plan, Canada is now a global investment destination of choice. In the first half of this year, Canada received the third-most foreign direct investment of any country in the entire world.” A recent OECD report does indeed say Canada was the country with the third-highest FDI inflows in the first half of 2023 — US$29 billion, to be precise — but it also shows that Canada’s FDI outflows were $55 billion in the same period. The volume of FDI inflows is not much to boast about when outflows are nearly twice that.

In fact, though Freeland credits the government’s economic plan for making Canada a supposed investment haven, in the second quarter of this year real business investment relative to the size of the labour force was 4.2 per cent lower than when the Liberals began implementing their economic plan in the third quarter of 2015. That is in stark contrast to an 11.0 per cent increase in the United States over the same period and rising investment in other developed economies, as well. As the C.D. Howe Institute’s William Robson noted in a recent memo, “if Canada is on a path toward less capital per worker, lower productivity and worse living standards, it is travelling that path alone.”

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In view of the singularly disastrous outcomes they have produced, it is no wonder the Liberals’ attempts to defend their record are — unlike a good dictionary — so thoroughly untrustworthy.

Matthew Lau is a Toronto writer.

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