Deputy Prime Minister and Minister of Finance Chrystia Freeland introduced a dysfunctional budget that will damage the economy with sins of both omission and commission.
Regrettably, the budget fails to meaningfully address affordability and housing, and exacerbates Canada’s productivity crisis. Instead, we were treated to a political document from a flailing tax-and-spend government desperately trying everything to reverse a collapse in the polls, but trapped by a financial squeeze brought on by its relentless profligacy.
Prime Minister Trudeau long abandoned any pretence of fiscal probity, sound economic management, or common sense. He is now reduced to buying votes with demographically targeted schemes, pie-in-the-sky net zero subsidies, performative government industrial policy, and counter-productive tax hikes.
The government deficit will reach $40 billion, making it harder for the Bank of Canada to lower rates, with negative implications for our cost of living. Debt doubled in the past nine years to a massive $1.4 trillion, driving federal interest obligations to $54 billion, more than health transfers. In four years interest will reach $64.3 billion, greater than equalization payments to the provinces and equal to GST revenue.
The sins of commission started pre-budget with a plethora of extravagant promises that, combined with other budgetary items, will cost $53 billion over five years, including dental care, pharmacare, a national schools food program, building apartments for millennials and Gen Z voters, and investments in the military and AI capacity. There are also tax credits for carbon capture and storage, clean technology, and critical minerals exploration.
Liberal government policies, including the budget, have exacerbated Canada’s lacklustre productivity. Reducing red tape, onerous, dilatory, and frequently hostile regulations, and uncompetitive taxes are obvious ways to increase competitiveness, innovation, profitability, capital investment, and job creation.
The government’s hostility to energy resources has been especially egregious, costing the country hundreds of billions of lost revenue, limiting public funding for social programs, and damaging economic growth, employment, and overseas exports. Furthermore, deliberately obstructive policies undermine national security and the ability to help allies desperate for our LNG. Government policies also discourage agriculture and critical minerals development.
There are other actions government can take to enhance productivity. It can enhance competition by reversing the onus on Investment Canada Act reviews. Progress has been glacial on removing interprovincial trade barriers that the Canadian Free Trade Agreement was supposed to address and which Deloitte concluded could lift GDP by $80 billion and wages by more than 5 percent.
Taxes should be lowered to enhance affordability for individuals and competitiveness for businesses. Instead, the budget went in the opposite direction with an increase in the capital gains inclusion rate starting June 25, from one half to two-thirds on gains over $250,000 annually for individuals, but the full amount for corporations and trusts. This measure is projected to increase tax revenues by $20 billion over five years. However, since investors can defer the gain by not selling assets, the amount is likely inflated.
The budget’s transparent context is that Justin Trudeau is determined to hang on to his power and privilege, abetted by Jagmeet Singh, who is exploiting Trudeau’s vulnerability at the expense of long-suffering Canadians who can’t wait to escape their painful grasp.
How sad when a country is prevented from reaching its potential by its own government.
