Thread by @trevortombe

Seeing some claim that Canada would need 3% real GDP growth for the CPC plan to balance in ten years to work out.

I strongly disagree. Agree or disagree with the goal, it's entirely credible. I'll explain. #Elxn44 #cdnpoli

First, obviously some negative event (recession/etc) might arrive before 2031 and throw things off. But with that caveat in mind:

If federal revenues grow with the economy, then *nominal* growth of 3.8% (real of 1.8%) would result in ~565b in revenue by 2031.

How'd I get that? Well the PBO baseline projection for 2025 is 452.1 billion. And 452.1*1.038^6 = 565 billion.

On the spending side, we'll be seeing a shrinking federal government as temporary covid measures are unwound. In 2022/23, the baseline PBO projection is for program spending of 404 billion. If that grows by 2.9% on average per year after, then by 2031 we'd have 522 billion.

How'd I get that? Well 404.1*1.029^9 = 522.6.

And 2.9% is roughly the inflation + population projection to 2031 (using StatCan's M1 scenario).

Combined with a reasonable estimate of debt service costs (using a 3% interest rate), we'd be looking at roughly 42 billion in debt charges by 2031.

Total spending: ~565 billion

So, this shows revenues projected at 565 billion by 2031 and total expenditures of 565 that same year. It is therefore entirely reasonable to balance over the period without lowering federal spending (either in total or in real per capita terms).

Of course, some spending areas will grow faster than others. And some spending areas might be cut. But that kind of reallocation is true of all parties. I interpret "cut federal spending" in this case as referring to the total aggregate real per capita level of program spending.

So, I conclude claims that a 3% real GDP growth rate is required to balance over a decade without cuts are incorrect.

To be clear, one can agree or disagree with the goal or prefer higher spending growth, etc., but that's a separate issue from the arithmetic.

/fin