Bill C-14 “An Act to implement certain provisions of the economic statement tabled in Parliament on November 30, 2020 and other measures” was introduced into parliament on December 2, 2020 by Deputy Prime Minister and Finance Minister Chrystia Freeland to the Liberal government’s “Fall Economic Statement 2020”.
The last Liberal budget was presented by then Finance Minister Bill Morneau on March 19, 2019… almost two years ago.
Bill C-14 is designed to allow the government to continue operating without having to table a budget. It deals with, in part, federal borrowing.
The summary states, “Part 7 amends the Borrowing Authority Act to, among other things, increase the maximum amount of certain borrowings and include certain borrowings that were previously excluded in the calculation of that amount. It also makes a related amendment to the Financial Administration Act.”
Those “borrowings” were the subject of discussion during the “Pre-Budget Consultations in Advance of the 2021 Budget” held by the Standing Committee on Finance in January, whereby it became known that Freeland intended to increase government borrowing authority to $1.8 trillion – more than Canada’s $1.71 trillion GDP in 2020.
The number was particularly alarming because just over a month earlier, in the fall economic statement delivered November 30, the number had been $1.2 trillion. It appeared as though government spending was out of control, being funded by unhinged borrowing, and that the Liberals had no real grasp on how much money they intended to spend.
Freeland reassured the committee however, that the $1.8 trillion number was “prudent”.
As usual however, the devil is in the details, and the details are in Part 7 of the bill.
Part 7 “Borrowing Authority Act” includes amendments to the Act that increases the total amount of borrowing by the Minister of Finance from $1,168,000,000,000 to $1,831,000,000,000.
Then, there is a qualifier.
It also includes the following amendment, “6. The Minister may borrow an amount under an order made under paragraph 46.1(a) or (b) of the Financial Administration Act even if that borrowing causes the maximum amount referred to in section 4 of this Act to be exceeded.”
Paragraph 46.1 of the Financial Administration Act reads, “In any fiscal year, the Governor in Council may by order authorize the Minister to borrow money for
- (a) the payment of any amount that is required to be paid in that fiscal year in respect of any money borrowed under the authority of this Act or any other Act of Parliament;
- (b) the extinguishment or reduction of any liability of Canada, if the Minister is of the opinion that the liability should be extinguished or reduced; or…”
Therefore, although the borrowing limit is set at $1.8 trillion, the minister can ignore that limit and borrow more… say $2 trillion… $3 trillion… $10 trillion – there is no real limit, beyond the market realities of Canada’s diminishing credit rating.
The wording of Paragraph 46.1 also permits the government to borrow any amount to pay back debt. This will come in handy when the current short-term low interest COVID-debt comes due and must be refinanced (at what will almost certainly be higher interest rates). The taxpayers will be borrowing high-interest money to pay off existing low-interest debts.
Canada will have to borrow the money because the proposed ceiling of $1.8 trillion will raise Canada’s debt-to-GDP ratio to 105.26 per cent. Countries with debt-to-GDP ratios above 77 per cent for prolonged periods suffer significant reductions in economic growth, according to the World Bank.
Since Canada’s debt-to-GDP ratio is forecast to stay above 100 per cent through 2025, and 75% of borrowing to date has been short-term (4 years or less), most of this will have to be refinanced at higher rates during a time of stagnant or reduced economic growth.
Canada will be looking for money under less than optimum conditions; forced to borrow, poor economic growth, high debt to GDP ratio, and diminished credit rating.
Fitch Ratings downgraded Canada’s triple-A credit rating in June – before the July and November deficit and debt increases – dropping the country to an “AA+” rating over what it called “the deterioration of Canada’s public finances”.
Newly appointed Conservative finance critic MP (Abbotsford) Ed Fast has his work cut out.
Bill C-14 is a “black” Amex card for Liberals.
The monthly statements will be delivered to Canadian taxpayers.