Article contentLabelling expenditures as capital or generational investments does not change their fiscal impact. All debt must be repaid or serviced through future surpluses, higher taxes, or spending cuts. With uncertain economic prospects, low productivity and an aging population, future generations will likely bear the brunt of today’s fiscal choices.Article contentArticle contentDecreased public sectorArticle contentThe federal government has mandated departmental operating budget reductions of 7.5 per cent in 2026, 10 per cent in 2027-28, and 15 per cent in 2029. While these measures may appear prudent, together they will reduce nearly one-third of departmental budgets within five years. The feasibility and consequences of these reductions remain uncertain.Article contentMost federal operating expenditures go to public service salaries, benefits, and program delivery. Such deep reductions are likely to result in decreased public sector employment and administrative capacity. Anticipated outcomes include delays in service delivery, loss of expertise, and diminished institutional memory.Article contentArticle contentThe proposed operating budget reductions will have the greatest impact on Atlantic Canada. Here, federal employment is key to stability. The public sector accounts for a larger share of jobs and income than in other regions.Article contentIf Ottawa implements these large cuts by 2029, the Atlantic provinces will be adversely affected. Reductions in federal jobs will lower incomes and reduce local spending in communities already facing demographic challenges.Article contentFederal operations are spread across regions. For example, Veterans Affairs and Revenue Canada are in Charlottetown, while Fisheries and Oceans operates in Halifax and Moncton. Downsizing could disproportionately hit Atlantic institutions that provide national services. Even modest job attrition, such as not replacing retiring employees, could have significant effects. The public sector remains essential to the stability of many urban economies in Atlantic Canada.Article contentArticle contentArticle contentGeneral investmentArticle contentFiscal pressures are increasing, and uncertainty persists about the extent of borrowing needed to support generational investments. For example, raising defence spending to five per cent of GDP by 2035 could require $150 billion a year over the next decade, according to government estimates. This represents a structural shift in federal spending unmatched in recent Canadian history.Article contentEvery era claims to invest in the future. The true test of generational investments is not the amount borrowed or built, but what endures beyond the current generation. Unless the federal government aligns its goals for transformation with fiscal sustainability, Canada risks establishing fiscal expansion as a virtue and leaving a legacy of well-intentioned overreach presented as intergenerational foresight.Article contentWithout clear, transparent criteria for what really constitutes a generational investment, this framing risks becoming a slogan to mask unsustainable spending growth. For all the talk of generational investments, the underlying dilemma remains familiar: how to live within limits while claiming to invest beyond them.Article contentWe cannot rule out that, without serious consideration of fiscal sustainability, the so-called generational investments may ultimately become generational hardships.Article contentArticle contentArticle contentArticle contentPalanisamy Nagarajan is a professor emeritus of economics and an island studies teaching fellow at the University of Prince Edward Island in Charlottetown.Article content
COMMENTARY: Federal budget cuts will disproportionately hit Atlantic Canada
