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Liberal government is placing a daring fiscal bet with its massive deficit spending plan

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This column is an opinion by Christian Leuprecht, a professor in leadership at the Royal Military College, director of the Institute of Intergovernmental Relations at Queen’s University, Fulbright Research Chair in Canada-U.S. Relations at Johns Hopkins University’s School for Advanced International Studies, and Senior Fellow at the Macdonald Laurier Institute. For more information about CBC’s Opinion section, please see the FAQ.

By gambling it can get a free lunch, the federal government is making a daring fiscal bet.

The economic statement for the 2020-21 fiscal year, tabled Monday, projects the largest single-year budgetary deficit since Canada began keeping track in 1966-67: $381.6 billion. That deficit is greater than total federal spending in the previous fiscal year, $375 billion, which included a $21.77 billion deficit.

Canadians are told such aggressive debt expansion is readily sustainable, provided GDP growth exceeds interest rates and debt servicing charges remain low.

Yet that’s not a sure bet. Upward pressure on interest rates would precipitate positive fiscal and higher welfare costs. And post-COVID-19, short-term GDP growth in countries with sounder economic fundamentals could surpass normal GDP growth in Canada, or inflation could force the Bank of Canada to wind down its holding of federal debt.

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