What of Canada’s Economic Future?

The Niagara Independent, October 11, 2019 — It remains to be seen whether the country’s economy and pocketbook issues will be the determining ballot box question this election. Judging from the little attention the mainstream media (and the Party Leaders) have paid to the country’s economy, it is unlikely voters will consider Canada’s economic future when casting their vote. That being said, what happens Oct. 21 could determine the economic fate of the country for decades to come.

So, what of Canada’s economic future? Here are three factors requiring a greater discussion before the vote: the country’s fiscal plan, taxes, and growing the economy.

Canada’s fiscal plan: In past federal elections, the front running parties would announce fully costed platforms that would inevitably reference a target date for balancing the country’s books. Not in 2019. This election is hijacked by the Liberal’s gambit that Canadians no longer care for the country’s balance sheet. Justin Trudeau and his Finance Minister Bill Morneau unveiled a platform that will run deficits of more than $20 billion for each of the next four years. The Liberals propose tens of billions in new spending (with promises like their new pharmacare plan not costed) and there is no mention to balance the budget. After the 2019 Morneau Budget the Parliamentary Budget Office issued a projection that the Liberals would not be balancing the country’s annual books until 2040 – and now with their election promises, this will not even be possible.

As hefty the spending promises made by the Liberals, both the NDP and the Green Party have promised more. The Conservatives have indicated they intend to balance the books in five years, but have not produced a costed platform.

The underlying problem with this lack of concern for Canada’s fiscal situation is that the mounting debt forces mounting interest payments and this takes directly from the government’s ability to provide future programs and services. Consider these facts: In the last fiscal year 2018-19 we paid $23.3 billion in interest payments on a national debt that has climbed to $685 billion. Runaway spending and continual deficits as promised by the Liberals, NDP and Greens will cause future distress for Canadian taxpayers.

Taxes: Middle-income individuals today pay higher personal income taxes than they did in 2015. The Fraser Institute reports that with the Liberal Government’s tax policies more than 80 per cent of middle class families (households earning between $77,000 and $108,000) now pay an average of $840 more in personal taxes annually. Lower-middle-class families (household incomes between $52,000 and $77,000) pay nearly 70 percent more in personal income tax.

The current tax burden cannot be worse given many Canadians are struggling with living costs. Accounting firm BDO Canada Ltd recently released statistics that suggest more than half of Canadians live paycheque to paycheque and more than a third have no retirement savings. A majority of Canadians (53 percent) had little disposable income and about one-third of Canadians are carrying credit card balances they cannot pay off.

Both the Liberals and Conservatives are promising relief for the indebted middleclass with income tax reduction plans. The difference between the two parties is the fate of the carbon tax. The Conservatives promise to eliminate this tax, which impacts gas pump prices, home fuel and all goods and services that require transport. On the other hand, the Liberals will maintain the tax and Justin Trudeau has repeatedly remarked there is a plan to adjust the tax so that Canada can meet its 2030 carbon emission targets. This will likely mean, if re-elected, the Liberals will need to raise its carbon tax five times its current level to $300 per tonne, which will hike pump prices to well over $2.00 per litre and add to the cost of everything that moves. The carbon tax will be a considerable burden for all Canadians.

Economic Growth: Aside from the all-party debate on the fate of future pipelines, there has been little sparring over trade and commerce issues. International economic data shows that the country’s economy is waning. The Canadian Chamber of Commerce issued a statement on the release of this week’s World Economic Forum report on global competitiveness: “Today, the world’s leading competitiveness index shows that Canada has dropped in the rankings for the second year in a row…. (It’s) proving what Canada’s business leaders have expressed over and over and over again — that this country’s business and investment environment is weakening. And it is inconceivable that Canada’s competitiveness is not a central issue in this election.”

Up until 2015, Canada’s real GDP per capita growth tracked closely with the U.S. After 2015 real GDP per capita increased only 2.7 percent in Canada, compared with 6.3 percent south of the border. For the North American business community the difference was the Liberals regulatory and fiscal policies undermining business confidence. And, it appears that the promised Liberal platform presents more of the same. (Unfortunately, Canada will not “grow the economy from the heart out” as Trudeau had predicted in the 2015 campaign.)

The single big-ticket, economy-related promise that has been presented to Canadians this election is the Conservative plan to create a national energy corridor. Andrew Scheer has committed to building a cross-Canada corridor to carry oil, gas, hydroelectricity and telecommunications. He has stated the Conservative corridor plan will increase certainty for investors, help get critical projects built, and provide greater economic and social benefits for all Canadians. Scheer also expects this corridor plan will minimize environmental impacts. For the Conservatives, this plan is much more than a debate over future pipelines; it is Canada’s future economic generator.

The political parties all have different approaches to the critical economic issues we face as a country. The Oct. 21 vote matters a great deal when considering Canada’s fiscal plan and national debt, our current and future taxes, and the country’s economic growth.

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK: https://niagaraindependent.ca/what-of-canadas-economic-future/

Whither the Canadian Middle Class?

The Niagara Independent, April 26, 2019 — It is a group that politicians like to promote as the focus of their attention, the targeted benefactors of their support initiatives. Yet, Canada’s middle class is not only decreasing in numbers, it is managing worse than past generations. This reality may cause trouble for any political Party posturing as “champions of the middle class” in the coming election campaign.

The Organization for Economic Co-operation and Development (OECD) has published an analysis that reveals the middle class is shrinking – squeezed primarily by high housing and education costs, and displaced by automation. The report defines middle class as 75-to-200 per cent of the median income in each nation. For Canada, that means a person living alone would have an income of about $29,432 to $78,485. In the 36 OECD countries, the portion of citizens considered middle class fell in the last 30 years to 61 per cent from 64 per cent. In Canada, middle-class shrinkage was sharper than the OECD average.

A key OECD finding about our country was that just 59 per cent of Canadian millennials were found to have attained middle class status by their 20s, compared to 67 per cent of their parents.

The report cites one of the greatest factors in this decline is housing costs, which have risen at twice the rate of inflation. Realizing the dream of middle-class home ownership is getting much tougher — “Housing costs are squeezing the middle class the hardest and these costs now consumes a third of disposable income for middle-class households, up from a quarter in the 1990s.”

The report also attributes Canadians’ middle class slippage to the rise of automation, estimating that one in five middle-class workers is at risk of losing their job to a machine. The report states that “while having high-level skills is not as much of a guarantee of financial success as it once was, being in a high-skill job still greatly increases the chances of making more money.”

The OECD’s underlying conclusion is worrisome for Canadians. It states: “The middle class used to be an aspiration. For many generations it meant the assurance of living in a comfortable house and affording a rewarding lifestyle. However, there are now signs that this bedrock of our democracies and economic growth is not as stable as in the past.”

Gabriela Ramos, the international organization’s chief of staff, commented in the preface of the report, “A strong and prosperous middle class is crucial for any successful economy and cohesive society. Societies with a strong middle class have lower crime rates, they enjoy higher levels of trust and life satisfaction, as well as greater political stability and good performance.”

Canadians attitudes about themselves seem to reflect this OECD report. A 2018 Ekos Research poll for The Canadian Press suggests fewer than half of all Canadians now identify as members of the middle class. This is a steep drop from nearly 70 per cent in 2002.  The poll results show the main contributing factors to this shift in Canadians’ attitude is perceived higher income inequality and slower economic growth in the country.

Ekos president Frank Graves states, “The whole notion of a middle-class dream — ‘I work hard, build a better mousetrap, do better than my parents, my kids do better than me, I get a house, a car, retire in comfort’ — that has all been shattered. A lot of people are stagnating or falling behind and they’re not happy.”

A recent Ipsos poll conducted on behalf of insolvency firm MNP Ltd. reports a quarter of Canadians say they struggle to pay bills by month-end. More Canadians are a thin line away from bankruptcy with 48 per cent admitting they are $200 or less each month away from financial insolvency. One in four (26 per cent) state they have no wiggle room at month-end — they are not making enough to cover their bills and debt payments.

Those surveyed also say they have been squeezed tighter with the rise in interest rates that began last year. Nearly half (47 per cent) think they may get into financial trouble if interest rates go up further, and 35 per cent believe rate increases will push them towards bankruptcy.

These are stark realities for Canada’s middle class – realities that cannot be addressed with political posturing and electioneering rhetoric.

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK: https://niagaraindependent.ca/whither-the-canadian-middle-class/

This Federal Government Has a Spending Problem

The Niagara Independent, March 15, 2019 — Finance Minister Bill Morneau will be delivering his fourth federal government budget next Wednesday, March 19. Given the news that the government ran a budgetary surplus of $300 million through the first nine months of the fiscal year, many financial analysts and political pundits are expecting the Finance Minister to increase federal spending – yet again.

Avery Shenfeld, chief economist for CIBC, forecasts in a Canadian Press interview: “I’m expecting cheques to go out somewhere. Remember that in the last election the party that won was the one party not promising to balance the budget… The recent sluggishness of the economy is just one more reason to expect a budget that sends out some goodies.”

With the looming election this Fall, Canadians are likely to see Minister Morneau make new (costly) promises relating to a national first-time homeownership initiative and a new national pharmacare program to provide “free” basic drugs for all. Canadians will be told the government can afford these promises based on our strong economic performance and an attractive debt-to-GDP ratio.

Interestingly, the federal finance minister no longer speaks of “deficits” and of “balancing the budget.” His favourite economic metric now is Canada’s “debt-to-GDP ratio” – the federal debt figure divided by Canada’s total economic production.

Pundits believe Bill Morneau will also use this budget address to explain to Canadians that he and the Trudeau Government have a firm hold on federal government finances. His speech is sure to pre-empt the Opposition’s attack of the Liberals fiscal record through the past four years.

As the oft-heard criticism goes, Justin Trudeau ran in 2015 on a promise to stimulate and grow Canada’s economy by spending small, annual deficits of $10 million. Somewhere in the last few years this Liberal plan was abandoned and, today, the Finance Department projects the government is on track to run deficits until the year 2040, which will add approximately $300 billion to the country’s federal debt. (ed. – This is not as bad as it sounds given our debt-to-GDP ratio.)

The Liberals’ continuous deficits are fueled by their unbridled government spending. Federal spending has grown from just under $300 billion annually in the last year of the Harper Conservative government to almost $340 billion for this past fiscal year. In reviewing the post-WWII period in Canada, PM Justin Trudeau has presided over the fourth-largest average annual increase (3.1 per cent) in per person program spending. This unflattering record ranks behind only his father, Pierre Trudeau (4.5 per cent), Lester Pearson (5.3 per cent) and Louis St. Laurent (7.0 per cent). In fact, this Trudeau Government has now recorded two of the three highest-spending years in Canadian history – 2017 and 2018.

To place the current Liberal Government’s fiscal record into context with those of recent Prime Ministers’, both PMs Brian Mulroney and Jean Chrétien recorded average annual per-person spending declines of 0.3 per cent. Over the Stephen Harper Government’s 10 budgets, that government recorded an average annual per-person spending increase of 1.5 per cent.

The difficulty with the Trudeau Government’s continuous overspending is brought into sharp focus in a recent analysis released by the Fraser Institute.  Jason Clemens, co-author of the Institute’s report entitled Prime Ministers and Government Spending, observes, “Wars and recessions clearly affect government spending, but to see this high level of peacetime spending when the economy is also growing could spell trouble for Canadian taxpayers in the future.”

Clemens explains, “The past few years have seen rapid and historic increases in deficit-financed government spending in Ottawa, at a time when the economy is growing. Higher spending often leads to higher deficits and more debt that ultimately must be paid by taxpayers, which is why current spending levels represent a burden to current and future taxpayers.”

But on Wednesday Canadians will not hear about these facts – about the challenges presented by continuous deficit spending. Instead, Finance Minister Morneau will tell us about the Liberals’ attractive election promises. He will reassure us with an accounting of the country’s favourable debt-to-GDP ratio. Yet, as the Fraser Institute’s report suggests, it may be best to remember that all this government overspending does not add up for Canadians’ fiscal future.

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK: https://niagaraindependent.ca/this-federal-government-has-a-spending-problem/

Canadians are Adrift on a Sea of Debt (Part 2 of 2)

The Niagara Independent, November 9, 2018 – Recent government announcements and news reports have provided Canadians with an accounting of how much our Canadian governments are in debt. The current federal government, spending hundreds of billions of dollars, seemingly pays no heed to the size of their annual deficits. Add the sum of all provincial governments’ deficit budgets and one soon realizes that our governments are burying us in a deep, dank financial hole; from which no Canadian alive today will likely climb out. The reported numbers are startling.

In Ottawa, the federal government recorded a shortfall of $19 billion for the last fiscal year, repeating the deficit amount of the previous year. The government reports its federal spending continues to rise and is now $332 billion – $332,000,000,000 – the highest amount of government spending ever recorded.

Finance Minister Bill Morneau and finance officials will be quick to point out that the $332 billion figure is higher than in the past because of a change in accounting practices. But, this explanation does not address the fact that the federal government spending continues to increase.

The trend of overspending in Ottawa has resulted in the government adding almost $20 billion to the national debt in the 2017-18 fiscal year. As of March 31, 2018, Canada’s net debt is $758 billion. PM Justin Trudeau recently indicated his government will not balance the books before the election. Neither he, nor the finance minister, will offer a target date for when the Liberals can commit to a balanced budget.

In late October, an independent report on the state of federal finances assessed that the government will require deeper-than-expected deficits in each of the next few years. Canada’s federal parliamentary budget officer concludes that there is only a 10 per cent chance the federal books will return to balance in 2021-22, and a 30 per cent chance of seeing black ink in 2023-24. Are Canadians left to assume annual deficit budgets are here to stay?

In a recent Financial Post editorial, Fraser Institute economists provided no reassurances about the federal finance minister’s ability to manage budgets. They opine: “Morneau seems unaware of the risks of running deficits during periods of economic growth. Specifically, running deficits outside of recessions (or pronounced slowdowns) risks a permanent imbalance between spending and revenues, like what happened in Canada throughout the 1970s, ’80s and early ’90s. Simply put, it didn’t matter if the economy was growing, slowing or in recession. Ottawa could not balance its budget.”

At the provincial level, assessments based on past and current performances appear just as bleak. Last week, the Fraser Institute issued a report on provincial government debt which underlines “a serious problem.” Deficit budgeting appears to be systemic throughout the country – and especially burdensome in the province of Ontario. The report reveals: “Over the 10-year period from 2007-08 to 2017-18, total net provincial debt grew from $317.3 billion to $645.7 billion for an increase of 104 per cent. In addition, 50 per cent of the net debt belongs to Ontario – a proportion much larger than its population share of 39 per cent.”

Factoring in all of the latest news on our government’s finances, the combined federal and provincial debt currently stands at an astounding $1.4 trillion – a figure that has increased by more than 60 per cent in the past decade.

Canadians often hear Finance Minister Morneau crow that Canada has a very low federal debt-to-GDP ratio of just over 30 per cent. But, again, when factoring in all levels of government collectively, the Canadian governments’ debt-to-GDP in the last 10 years has risen from 69 per cent to 87 per cent.

Lots of figures. Lots of debt. Why should Canadians pay attention? Simply put, our current government spending and the national debt load directly impacts future governments’ abilities to respond to changing circumstances and global pressures. Our governments’ deficit budgeting curtails Canadians’ choices and opportunities – today, and for generations to come.

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK: https://niagaraindependent.ca/canadians-are-adrift-on-a-sea-of-debt-part-2-of-2/

Serious Challenges as Canadians are Adrift on a Sea of Debt (Part 1 of 2)

The Bank of Canada has indicated they are about to become more aggressive in 2019 and 2020 with increasing interest rates.

The Niagara Independent, November 2, 2018 – Interest rates are rising and many Canadians will begin to feel the pain. Last week the Bank of Canada hiked its key lending rate and major lending institutions followed suit, raising prime interest rates. This is the fifth time since the summer of 2017 that rates have risen and the Bank of Canada has indicated they are about to become more aggressive in 2019 and 2020. Some financial analysts point to recent comments made by Bank of Canada Governor Stephen Poloz to forecast the rate could climb as high as 3.5 percent.

What does that mean for an average household? Over the past 15 months, the Bank of Canada’s interest rate hikes have added an average of $2,500 in costs for Canadian households. Should the rate go as high as 3.5 percent, the costs would double again. If this were to occur, financial surveys indicate that one in two Canadians’ ability to service their existing debts will be directly affected. Half of Canadian households.

The “average middle class Canadian” is anxious about what might be coming in the months ahead. The latest Consumer Debt Index by insolvency practice MNP LTD., found that approximately 40 percent of Canadians are concerned about their existing debt loads, and 43 percent regret the amount of debt that they have incurred in their lives. The index reported that one in three Canadians are concerned that rising rates could push them towards bankruptcy.

The challenge with household debt and interest rates is compounded with the increasing amounts of taxes Canadians must pay. The Fraser Institute has documented the government’s take from Canadians’ earnings through the years. The average Canadian family now spends more of its income on taxes (43.1 percent) than it does on basic necessities such as food, shelter, and clothing combined (35.6 percent). In 2017, the average Canadian family earned an income of $85,883 and paid total taxes equaling $37,058 (43.1 percent). By comparison, in 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5 percent).

Taxes have grown much more rapidly than any other single expenditure for the average Canadian family – food, shelter, clothing, transportation, health and personal care, education, and other items. (And should the new carbon tax be imposed as designed by the federal Liberal Government, this tax burden will become heavier to bear for the average Canadian household.)

In a CBC News special series entitled “Debt Nation – looking at the state of consumer debt in Canada,” Theresa Tedesco pinpoints the foreboding issue:  Canada is now a country of borrowers and accumulating high levels of household debt has become a necessity for a modern life. It is an alarming fact that Canadians owe $1.69 for every dollar of after-tax, earned, annual income – which is substantially higher than $1.00 from 20 years ago.

Again, it is the “average middle class Canadian” that has the most to worry about. Statistics Canada figures tell us that 71 per cent of all Canadian families carried some form of debt and 35 per cent of Canadian families were carrying debt worth at least two times the value of their after-tax annual income. According to the Bank of Canada, about eight per cent of indebted households owe a staggering 350 per cent or more of their gross income.

CBC’s Theresa Tedesco also makes the point that debt has lost its stigma and has become culturally more acceptable in Canada. She surmises: “Canadians are socialized into debt at an earlier age as younger people are developing an awareness of it by necessity and appear to be living with it longer. Our parents and grandparents borrowed to buy houses and cars with the intention of paying it back. We don’t think like that anymore.”

Indeed. The latest numbers from the Bank of Canada tell us that individual Canadians are swimming in more than $2 trillion of debt today. The worry is, in the months and years to come, they just may not be able to tread water given the rising interest rates and increasing tax burden.

Next week: a look at our governments’ debt levels and what that means for Canada’s future.

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS.  Contact: ChrisG.George@gmail.com

LINK:  https://niagaraindependent.ca/serious-challenges-as-canadians-are-adrift-on-a-sea-of-debt-part-1-of-2/