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Finance minister Bailey says current plans to cut the deficit "won't bend the curve"

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  Published in Business and Finance on Tuesday, September 23rd 2025 at 23:52 GMT by Toronto Star
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Finance Minister Bailey Hints the Deficit‑Cut Plan Will Be “Just a Step” in a Longer‑Term Debt Journey

When Parliament convened on Tuesday, Finance Minister Chrystian Bailey took the floor with the same calm assurance that has defined his tenure: fiscal prudence must be balanced against the need to keep the Canadian economy growing. Yet his most recent remarks – that the current deficit‑cut plan “won’t bend the curve” – raised fresh questions about how the federal government intends to keep the nation’s debt trajectory in check.

The phrase “bend the curve” references the long‑term debt‑to‑GDP forecasts that accompany every federal budget. In simple terms, the curve plots projected debt levels over a decade or more, and the steeper the slope, the more urgent the need for corrective action. Bailey’s statement underscores a fact that had been on the back burner: the government’s latest fiscal strategy will shrink the deficit, but it will not dramatically alter the slope of the debt curve.

The Numbers Behind the Words

In his Tuesday address, Bailey cited the fiscal plan’s own projections. While the plan includes a 4‑per‑cent reduction in the deficit over the next five years, the debt‑to‑GDP ratio – the percentage of the economy that is owed – is still expected to climb from roughly 58 % in 2023 to 62 % by 2025 and beyond. The finance minister acknowledged that this projected rise reflects a combination of the “cost of servicing the current debt stock” and the “persistent demand for public services that grow with the population and aging demographics.”

He also pointed to the “deficit curve” displayed on a screen in the House – a line that rises sharply in the next couple of years and then tapers as spending is trimmed. “We can’t expect that a single round of cuts to suddenly flatten the slope,” Bailey said, and he stressed that fiscal responsibility requires a multi‑year strategy, not a one‑off “stop‑gap” solution.

The plan’s short‑term actions are designed to reduce the deficit by about 1.2 billion dollars per year over the next three fiscal years, primarily through a mix of spending cuts, revenue increases from tax policy adjustments, and a modest uptick in corporate tax rates. Critics, however, warn that the revenue side of the equation may fall short in a low‑growth environment, potentially forcing a “squeeze” on social programs if the deficit target is not met.

What the Plan Actually Entails

A close reading of the linked fiscal plan – which the article pulls from the Finance Ministry’s website – shows the following key elements:

Bailey highlighted that the spending cuts would focus on non‑essential programs, such as certain infrastructure projects and some government subsidies. He defended the cuts as “necessary” to keep the debt load manageable, but he also noted that the plan includes safeguards for essential services: “We are not cutting health care, we are trimming the administrative overhead.”

The plan also projects a modest growth rate of 2.5 % in real GDP for 2024, which is used to model how the debt‑to‑GDP ratio will evolve. Should growth fall below expectations, the deficit could widen, pushing the debt curve upward even more steeply.

The Bigger Picture – Inflation, Growth, and Policy

Bailey’s comments were set against a backdrop of a persistently high inflation rate that the Bank of Canada is working to bring down to its 2 % target. He noted that a high inflation environment typically leads to higher interest rates, which in turn increase the cost of servicing debt. “Our plan takes into account that the cost of debt servicing is likely to rise,” he said. “That is why we are tightening the fiscal envelope now, before the rates climb further.”

The article also follows a link to the Bank of Canada’s inflation target, which adds context to Bailey’s remarks. If inflation continues to hover near 4 %, the government’s debt servicing costs could swell, making the deficit‑cut plan less effective. Conversely, if inflation subsides, the plan could produce a larger positive fiscal gap, giving the government more leeway to invest in growth‑boosting projects.

Critics and Concerns

Opposition parties are quick to note that the plan’s projected deficit reductions are modest relative to the scale of Canada’s debt. The Conservative Leader called the strategy “a tepid response to a looming fiscal crisis,” while the Liberal opposition argued that cutting discretionary spending will hurt public sector workers and beneficiaries of welfare programs.

A side note from the article links to a parliamentary committee report that highlights the risk of “policy paralysis” if fiscal constraints become too tight. The report suggests that a “deficit‑cut approach that is too aggressive could stifle investment in critical infrastructure, slowing economic growth and undermining the very fiscal stability it seeks to protect.”

The Take‑Away

Finance Minister Bailey’s statement that the deficit‑cut plan “won’t bend the curve” is a candid admission that the current strategy will only modestly alter the trajectory of Canada’s debt. The plan includes a mix of spending cuts, modest tax increases, and a focus on sustaining essential services while trimming administrative overhead. Yet, the projected debt‑to‑GDP ratio remains on a rising path, and inflationary pressures could erode the plan’s effectiveness.

For Canadians, the takeaway is that the government’s fiscal blueprint is a work in progress. While it may not flatten the debt curve overnight, it sets the groundwork for a gradual, controlled reduction in deficits. Whether that will be enough to safeguard Canada’s long‑term economic health will depend on a complex interplay of growth, inflation, and political will.