With one budget, Freeland overturned 3 decades of political orthodoxy

Nearly seven years ago, a rookie politician surveyed the political landscape across the democratic world and saw the outlines of a new era.

"What we are seeing, in both Western Europe and North America, is the end of the Reagan/Thatcher era and of the political ideas that created it," Chrystia Freeland wrote at the time.

While in power, U.S. President RonaldReagan and U.K. Prime Minister MargaretThatcher personified an anti-government agenda that prioritized cutting taxes, repealing regulation, shrinking the state and deferring to the market. For nearly three decades that agendaheld sway in the West, reining in the governingvisions of evenliberal politicians.

But in July 2014,Freeland was arguing that the Western world was on the cusp ofwhat she called a "new tectonic political shift" requiringa change in thinkingby and about government.

Back then, Freeland Justin Trudeau's first star recruithad been an MP for just eight months.Now she's a finance minister staring down the painfulendgame ofa global pandemic and the unpredictable future that will follow it.

The budget she tabled on Monday is about dealing withthe immediate threat ofCOVID-19 andthenrepairing and revitalizing the economywith an eye to the future. But it canalso be read asa document thatnudges the federal government and the political debatefurtheraway from the thinking of Reagan and Thatcher (and, in the Canadian context, Stephen Harper).

Permanent spending changes things

The budget proposes$135 billion in new spending over the next five fiscal years, most of which willbe spent over the next three years to deal with the impact of the pandemic and to stimulate the economy as the virus recedes.

But there is significant permanent spendinghere too: for fiscal 2025-2026 which isas far aheadas this budget looks Freeland has budgeted for$16.1 billion in new federalspending.

More than half of that $8.4 billion would go towardearly learning and child care, matching almost exactly what advocates had said would be necessary to deal with a lack of high-quality, affordable spaces.

But the budget also offersnew and substantialsums for Old Age Security ($3 billion), public transit ($2.6 billion) and measures related to climate change and the environment ($1.9 billion).Expanding access to the Canada Workers Benefit a refundable tax credit that supports low-income earners would cost an additional $1.7 billion;Freelandsays that couldlift 100,000 people out of poverty.

Back in 2014,Freelandsaid thatthe Reagan-Thatcher revolution grewfrom the idea that "an overgrown, inflexible welfare state" could be blamed for a sluggish economy and high inflation. But the key problems of the modern economy, she argued low economic growth and high economic inequality can be traced backto a lack of government action.

"If too much government was deemed the problem of the earlier era of stagflation, it is easier to argue today that the problem is too little of it too little stimulus, too little oversight, too little redistribution," she wrote.

Seven years later, that looks like foreshadowing.

The government grows, the government shrinks

The Trudeau government was elected on a promiseto spend more and do more.It has done dozens of things that the Harper government wouldn't have over the last six years (and some things which Trudeau might wish he hadn't done).But a few numbersalsomight quantify thebroaderchange.

In 1992-1993, at the end of Brian Mulroney's time as prime minister, the ratio of federal program expenses to GDP was 17 per cent down from 18.3 per cent in the last year of Pierre Trudeau's government while revenue was 17.3 per cent.

By 2014-2015, the last full fiscal year of Stephen Harper's government, federal spending had fallen to 12.5 per cent. Revenues were 14.0 per cent of GDP.

Before the pandemic, the Trudeau Liberals had pushed those numbers back to 14.1 per cent and 14.9 per cent. With this new budget, Freeland foresees spending reaching 14.9 per cent in 2025-2026 and revenues totalling 15.3 per cent.

WATCH: Chrystia Freeland promises billions of dollars for child care

Federal budget promises billions of dollars for a national child care system

3 years ago

Duration 3:03

Finance Minister Chrystia Freeland announced the Liberal government will invest $30 billion dollars over five years on early learning and child care services in this year's federal budget.

That's not quite the return of "big government," but it's several steps removed from the vision of Reagan, Thatcher and Harper. And that change of direction is now demonstrated by a commitment to dramatically increase the federal government's involvement in child care to spend federal resources and work with provinces to expand a vital social program.

It shouldn't be forgotten that Harper came to office with a promise to scrap theprevious Liberal government's plans for a national child care program.

Those onthe political leftmightarguethis isn't actually enough.And they might have a good case.The Trudeau government has shelved discussions about increasing health transfers to the provinces and Freeland's budget offersnothing new toward fulfillingthe Liberals' promise of apharmacare program. A new federal-provincialdeal that includes funds for longterm care could add billions to annualfederal governmentspending.

Those on the right might arguethat it's all too much.Aslong asthe federal government is forecasting a deficit,it will be challenged tomake the case that what it'sdoing is affordable.Even with debt servicing costs at near-historic lows projected at1.4 per cent of GDP in 2025-2026, compared to 5.8 per cent in 1992-1993 there will be some fretting about what might happen if interest rates rise in the future, or if there'sanother economic shocksoon.

WATCH: O'Toole says Liberals delivered an 'election-style' budget

O'Toole says Liberals delivered 'election-style budget' during pandemic

3 years ago

Duration 1:20

Erin O'Toole responds to the fiscal plan announced by the Liberal government on April 19.

MaybeFreelandstill sees a need to break away from theneo-liberalorthodoxy of the 1980s and onward, but she might also want to leave behindafiscally credible government.The alternative would only make it easierto usher in a new era of anti-government politicsdown the road.

But an election almost certainly willoccur long before anyone knows how the current fiscal situation plays out. TheLiberals might be happy with the contrast now forming with Conservative leader Erin O'Toole who responded to the budget by saying that the nation's finances are out of control and suggesting he would prioritize cutting taxes right now.

Reagan and Thatcher are ancient references now, but the pandemic might have emboldened those who, like Freeland,believe the time for a different approach has arrived. And Freeland has now delivered a budget that follows on the arguments shemade in 2014. That could setusup fora pivotal debate about the kind of government Canada needs now to deal with the problems of today.