Chrystia Freeland may be wishing she was Irish #CanadaFinance

Article content

When Finance Minister Chrystia Freeland delivers her fall economic statement on Monday she’ll need to spin a good story. It won’t be easy. The deficit for this fiscal year is expected to running much higher than the $40.1 billion she promised, maybe even over $60 billion, crashing through one of her fiscal “guardrails.”

Article content

Article content

No doubt she’ll pat herself on the back that the debt has risen less quickly than the gross domestic product. But that would be a hard guardrail to dent. It would take a truly whopping deficit — more than $120 billion — before debt rose faster than GDP. But that’s only because the debt is now so high, with all that has piled up since 2015, that extra debt has to be that much larger before the total can grow as fast as GDP.

Article content

With per capita GDP down almost four per cent from 2022 and the unemployment rate up almost two points to 6.8 per cent, Canada’s recent economic performance offers little for Freeland to brag about. The next couple of years may see better growth but we won’t catch the booming U.S., where per capita GDP is now 50 per cent higher than here. With oil prices softening and immigration slowing, it’s hard to see genuinely robust Canadian economic numbers in the next few years even if Donald Trump’s tariff threat comes to nothing.

Freeland would be much happier if she could deliver an Irish economic statement instead. Her new Irish counterpart, Jack Chambers, has no worries about slow growth or ballooning deficits. His “problem” is a surplus — a €24-billion surplus (C$34 billion) — and it’s mainly because corporate income tax receipts have been pouring in. They’ve more than doubled since 2019, from €10.8 billion then to €23.8 billion last year, and in the first 11 months of this year they’re up another 59 per cent (though that includes  €13 billion from Apple that the EU Court of Justice recently decided were illegal tax benefits it had received from 1991 to 2014).

Article content

Article content

With so much revenue rolling in, the Irish are debating how much more to save. Their current policy is to put a third of windfall corporate taxes into pension, health, infrastructure and climate funds but they’re thinking of raising that. (Windfall receipts are those in excess of what would be expected from Ireland’s economic growth.) Fiscal sobriety is such that the Irish Fiscal Advisory Council has raised concerns about six per cent increases in current and capital spending scheduled for each of the next two years.

Ireland’s government is much smaller and more efficient than Canada’s. According to the latest IMF data, public revenues are only 27.7 per cent of GDP, while expenditures are only 23.9 per cent. By comparison, Canada’s bloated federal, provincial and local governments take in revenues equal to 41.3 per cent of GDP to fund expenditures of 42.2 per cent of GDP. Ireland’s gross debt equals 42.2 per cent of GDP, less than half our 106.1 per cent.

Ireland’s good fiscal fortunes have nothing to do with the luck of her people but instead reflect brilliant economic strategy. Ireland’s “big bang” corporate tax policies over the past four decades, coupled with other smart, growth-oriented education and infrastructure policies, have made it one of the richest, most efficiently-governed countries today.

Article content

In the 1980s, Ireland cut its tax rate on corporate income from manufacturing and financial services to 10 per cent, leaving the top rate on other corporate income at a debilitating 50 per cent. In response to new EU rules in 1998, it adopted a uniform rate of 12.5 per cent on business profits and 25 per cent on “passive” profits.

Just as education investments were bringing more skilled labour to the market, the low corporate tax rate created a huge labour demand by foreign multinationals. Since 1996 Ireland has been the fastest growing OECD country, with an average rate of real GDP growth of 5.6 per cent per year. Despite a recent recession, the economy is expected to grow four per cent in each of the next two years, with unemployment falling from 4.4 to 1.4 per cent.

Last year Ireland’s per capita GDP was US$103,685 — almost twice our US$53,372. (The U.S. is at US$81,695). Removing payments to non-residents and adding in payments remitted to Irish residents from other countries, per capita national income is US$83,390 — fifth highest in the world. Our US$53,950 puts us 18th, while the U.S. is sixth, at US$83,300.

Article content

Along with all this economic growth, what’s not supposed to happen has: inequality has fallen, not risen. From 2012 to 2021, incomes grew even faster at the bottom of the income distribution than the top, partly due to cost-of-living allowances and government transfers. In 2023, according to World Bank estimates, income inequality was lower in Ireland than it was here.

Imagine if Freeland could rise in the House of Commons Monday to announce that the federal government is balancing its books and Canadian per capita economic growth is highest in the OECD. But she can’t say that because the sad fact is that Ottawa has messed up economic policy so badly that Canada is now a laggard in the OECD.

That’s what happens when a government becomes fixated on handouts, even Christmas season handouts, rather than economic growth.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content