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The federal budget is overflowing with risk

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On federal budget day, those of us that work in the financial service industry are busy. We tear into the budget document looking for major changes in tax policy, estimates for GDP growth, sector handouts and provincial support. Within hours of the budget's release, the media is jammed with detailed analysis and opinion.

Most Canadians don't give a damn.

They make the assumption that the government knows what it's doing and that any budget critic speaks from the opposition. After all, politics is the second oldest profession on the planet still in practice.

Within a few days the press cycle moves on and the budget is forgotten. That time has come again.

But before we turn the page on the federal budget of 2016, just one more thing: I want to go "big picture" and talk about risk.

What if Trudeau misinterpreted his mandate? Campaigning on the promise of a $10 billion deficit worked, so why not make a good thing three times better and deliver a $30 billion deficit?

But why stop there? Why not spend $30 billion for multiple years in a row until, well, until what? And why? He seems to be oblivious to the cost, consequence and risk of massive deficit spending.

I have seen this behavior before in another place. Las Vegas. Who hasn't heard of the gambler who goes bankrupt doubling down and trying to dig themselves out of an initial loss?

The 2016 federal budget is teeming with the same kind of risk.

When it comes to spending money, governments are highly inefficient. I always assume that 33% of what any government spends provincially or federally is completely wasted. Just look at the provide of Ontario, where the government spent billions on shuttered gas plants and blundered green initiatives to the point where it is now $308 billion in debt and still can't balance a budget.

And now we are about to do the same thing on the federal level. Except this time, I think the waste factor in this new budget is closer to 50%.

Why? Canada is a three sector economy: financial services, commodities and energy. This budget completely ignores this fact. Our number one export is energy. The energy complex employs hundreds of thousands of people.

In recent times, Alberta was the source of over $200 billion in transfer payments to the rest of the country provided from taxes and royalties. Whether you like energy or not, it is the heartbeat of our economy. When the commodity cycle has a downturn, it slows our economic growth. Historically, the government steps in to provide support, getting paid back when the cycle reverses.

Not this time. I kept flipping through the pages of the budget looking for the plan but to my amazement I could not find it. We are spending billions on lots of other untested ideas but virtually nothing on the number one sector of our economy.

It is further evidence of Rachel Notley's incompetent leadership. She is the first premier from Alberta who was not able to negotiate economic support from the feds during a time of catastrophic need. She has failed her province, the energy sector and the hundred thousand (and counting) of Canadians who have lost their jobs in the energy complex.

Her inability to engage Ottawa has caused a misalignment in the budget spending -- so much so that the feds are re-focusing their spending spigot and spraying cash on ground that will remain barren when they could have supported a province that has a long proven track record of providing billions of support for all Canadians.

Instead Trudeau has decided that it's time to abandon traditional energy as an economic driver and instead become the leader in new green technologies and carbon taxation. All in 36 months.

Is this for bragging rights? This is a huge risk. Ontario has spent billions trying to do just that over the last decade. Ask any Ontario taxpayer how it is going, and you'll find a legacy of debt and billions wasted. And now we want to do that federally?!

There is nothing wrong with investing in new energy technologies, but let the private sector take the risk because it will take decades, not months, to come to fruition.

So just why are we the taxpayers being forced into spending over $100 billion in the first place? We are not in recession. Finance Minister Bill Morneau suggests that this spending will increase our GDP growth by .5% next year. Who cares?! That is a rounding error. We have to plunge ourselves into debt for .5% growth? This is the definition of unproductive and wasteful spending.

New idea: how about we keep our powder dry and wait for the commodity cycle to recover instead. We may need that cash when a real recession arrives.

This budget is about spending for the sake of spending with no end in sight. As far as I can tell, there is no plan for why we are doing this. We have become desensitized to debt because interest rates have done nothing except go down for the last 20 years. You see this behavior at the household, provincial and federal level.

Trudeau is from a generation that has never experienced high interest rates so that risk is not in his calculus. With rates at historical lows, we service our federal debt with approximately ten cents of every tax dollar we bring in. We already have the highest and most uncompetitive personal tax rates in North America. What happens if we spend the $100 billion and rates go up? How will we pay for it? Trudeau says he wants to help the middle class. Instead, there is a good chance he will bankrupt it.

Governments make mistakes all the time and we usually recover. But this budget has to be the most dangerous in modern times. Why? The sheer size of the deficit coupled with no sound reason for it.

Ask yourself a simple question: When the Trudeau government is gone four years from now, will Canada be a better or worse place for your children and their generation? Or will the reckless gamble his government is taking make interest service on debt the number one federal program your children will have to support.

For Prime Minister Justin Trudeau, Finance Minister Bill Morneau and Mr. Fix It Gerald Butts one thing is for sure: if they are wrong you are going to paying for it long after they have been forgotten.

Maybe they don't know what they are doing. That is the risk.

Kevin O'Leary is the chairman of The O'Leary Financial Group. He is a contributor to the CTV, CNBC and ABC television networks on investment, economic and fiscal policy.