Freeland makes a 'modern supply-side' bet on Canada's future economic growth

Presenting her second budget to the House of Commons on Thursday, Finance Minister Chrystia Freeland said that "now is the time for us to focus — with smart investments and a clarity of purpose — on growing our economy and on making life more affordable for Canadians."

Nearly everyone in Ottawa would agree with those broad goals. As ever, the real debate is about how to do it.

As Freeland spoke, interim Conservative leader Candice Bergen was at a microphone in the House foyer telling reporters that her MPs would not support the "out-of-control spending" of an "irresponsible ... typical NDP spend-and-tax budget."

Not to be outdone, Pierre Poilievre, the presumptive front-runner in the Conservative leadership race, tweeted that the "socialist coalition budget" would "turbocharge" inflation.

The NDP effect shouldn't be overstated. For all the hype, the NDP's contributions to this budget are relatively modest, at least in the fiscal sense.

The NDP's biggest demand — for the expansion of subsidized dental care — adds $5.3 billion to the budget over the next five years. A one-time increase to the Canada Housing Benefit — a proposal that came out of the negotiations between the Liberals and New Democrats on the supply-and-confidence agreement that would stave off an election until 2025 — will cost $475 million this year.

Other than those elements — which will matter a lot to the Canadians who benefit from them — this is a budget that a Liberal majority government would have tabled, with a couple of orange post-it notes affixed. The deficit is projected to decline steadily to $8.4 billion in 2027, which would be the smallest deficit these Liberals have run.

But there is still a debate to be had about how Ottawa should help build a growing economy — especially now that the federal government has embraced – or at least borrowed – a new name for its own approach.

"Our strategy is what Janet Yellen, the U.S. secretary of the Treasury, has recently dubbed 'Modern Supply-Side Economics,'" Freeland said Thursday.

Freeland argued in the budget that what Yellen described in a speech in January is more or less what the Liberals have been trying to do for the last six-and-a-half years. But Yellen may have explained it in a more straightforward and succinct manner than any Liberal has managed to date.

As Yellen framed it, "traditional" supply-side economics — the name given to the policy agendas of conservative figures like former American president Ronald Reagan and former British prime minister Margaret Thatcher — "seeks to expand the economy's potential output … through aggressive deregulation paired with tax cuts designed to promote private capital investment."

"Modern supply-side economics, in contrast," she continued, "prioritizes labour supply, human capital, public infrastructure, [research and development] and investments in a sustainable environment," the treasury secretary said. "Modern supply-side economics seeks to spur economic growth by both boosting labour supply and raising productivity, while reducing inequality and environmental damage."

Two and a half months later, Freeland has tabled a budget that puts significant sums of new money toward housing, infrastructure, innovation and clean growth, while touching on things like immigration and training.

"Modern supply-side economics borrows the supply-sider's key insight — that increasing supply is fundamental to growth — but takes a progressive, people-centred approach," Freeland said Thursday.