The federal budget document is over 400 pages long but surprisingly easy to read and understand. The budget is full of progressive talking points that we will hear incessantly over the next eighteen months as the Trudeau Liberals try to recover from the near extinction support they see in recent polls. But in reality, the budget does little except take an estimated $20 billion from mostly private corporations and use this money to buy votes by giving away money to the “green economy” which is entirely premised on the nonsensical view that CO2 causes climate change.
The budget assumes inflation of ~2% throughout its forecast period and real economic growth of about the same percentage. Neither has a hope in hell. Continued increases in carbon taxes and the higher costs (the budget assumes lower costs) of “green energy” will add to inflation and the pretense that higher Bank of Canada rates can restrain inflation is a relic of the time when government debt was low and the interest income on that debt held by Canadians relatively little. Today, with a $2 trillion dollar economy and over $1.4 trillion of federal debt, interest on that debt is income to bondholders and will soon amount to about $50 or $60 billion annually, which will add to consumer demand. As I noted in an earlier article, interest rates of 13.5% in 1983 were insufficient to keep economic growth in check with real GDP growth of 5.9% that year and inflation racing along in double digits. The Bank of Canada may claim its policy rates are a tool to restrain price inflation but those days are long gone, and higher rates may do the opposite by increasing the costs of everything from credit card debts to mortgages to corporate borrowing, all of which add to inflation, but those rates do little to restrict economic growth. Strong demand for Canadian energy, a robust U.S. economy, and a combined stimulus package of about $100 billion (comprising a deficit of at least $40 billion and interest payments to bondholders which may hit $60 billion before long) will keep the economy expanding albeit at a rate insufficient to create any increase in per capita GDP without increases in productivity. Raising taxes on businesses - even capital gains taxes - isn’t going to prompt many new capital investments.
The budget’s capital gains tax is aimed at 40,000 Canadians who enjoy capital gains, but only kicks in after $250,000 of such gains are booked each year. Most Canadians will schedule their profit taking to stay within the lower rate brackets, or run out and take existing gains before the June 25, 2024 deadline when the higher rates take affect.
The real revenue from the capital gains tax has to come from the 307,000 corporations the budget discloses earned capital gains (presumably information from Canada Revenue Agency that we thought was confidential when we filed our corporate tax returns) will bear the brunt of this tax grab. Since there are only about 3,000 public companies listed on Canadian exchanges, the vast majority of those affected by the tax increase will be over 300,000 private companies - typically owned by small businesses successful enough to have an investment portfolio or real estate assets that appreciate in price and create the potential for capital gains. Watch as the job creation by this key sector of Canada’s economy falters and less capital is invested in the equipment and facilities needed to improve Canada’s dismal record of productivity.
The federal government’s planned intrusion into the housing sector is an unwelcome intervention into Provincial jurisdictions that may face as many legal challenges as it creates homes and is “theatre” since the federal government has no skilled trades to execute its plans and will have to compete with the thousands of private developers for the skills those plans will need. Increasing immigration is Trudeau’s answer and that increase will add to demand for housing at a faster pace than homes can be built beyond what is already in the cards.
Wonder why housing is so expensive? This chart from the Budget shows the rate of increase in rent inflation since Trudeau was elected in 2015. To try and make the chart seem palatable, Minister Freeland chose 1981 as the starting date so today’s rate wouldn’t seem to be so high, but all she proved is that rent inflation was in decline for over thirty years until the Liberals were elected in 2015.
The issues that are important to Canadians are the rising cost of living, housing affordability, health care and the economy. Only 29% of Canadians surveyed buy the specious crap that CO2 causes climate change, and most of those in that 29% are leftists who share the wish that alarms over climate change will rally support for global socialism. CO2 is demonstrably harmless, essential to life, and has little to do with climate.
Source: Abacus Data
Canadians want smaller government, lower taxes, more freedom and less regulatory restrictions on how they live, how they eat, how they educate their children and how they advance their careers and businesses. They just want to live their lives free from government involvement. Under the Liberals, they get larger government, higher taxes, less freedom, more regulation and barriers to their career and business success. The radical left has taken over and ordinary Canadians have been left out.
Fortunately for Canadians, the Liberals are running out of time and an election will take place within eighteen months that seems sure to run them out of office, and the benefit or burden of their budget initiatives will be addressed by a new government driven by what Canadians want and need and not by what Justin Trudeau tells them is in their interest. Carbon taxes will disappear, our energy industry will expand and flourish, and the size and cost of government will go under the knife of a common sense administration under Pierre Poilievre.
I can’t wait.
We have a productivity problem ,
so 41 pages devoted to DEI
The Lunacy Budget