Tag Archives: debt

The consequential fiscal facts on Canada’s economy

The Niagara Independent, September 4, 2020  – In a CBC interview this week, Prime Minister Justin Trudeau said, “We are asking Canadians to embark on an entirely different direction as a government. We are going to rebuild the Canadian economy in a way that was better than before.”

The Liberals’ intention to restructure the country’s post-pandemic economy is being described by many political pundits as a “bold plan.” One unnamed senior Ottawa mandarin stated in a Toronto Star article that the bundle of social programs and spending about to be showcased in the upcoming Thorne Speech is “a structural change in the way government in this country operates.” A senior Liberal political insider who is familiar with the plan (who wished to remain anonymous because he is not authorized to speak publicly) commented, “It’s all going to take money on a scale we haven’t seen before.”

Through a seemingly orchestrated series of insiders’ leaks, the Prime Minister’s backroom appears to be preconditioning Canadians for an economic recovery plan the likes of which we have never seen or experienced in our country. This foreboding forecast has many in Ottawa, on Bay Street, and in boardrooms and living rooms across the country bracing themselves.

National Post political newsman John Ivison reports, “Trudeau’s “literally frightening” spending plan has some Liberals, bureaucrats very worried.” In the Post’s feature column on Thursday, Ivison writes of the Liberals’ design to remake Canada in their own progressive image and he quotes an Ottawa insider as saying, “It is literally frightening. I am very worried about my kids’ future and their capacity to service that level of debt. The fact is that the government is embarking on a major policy shift and this is a government that is not worried by deficits of 10 per cent of GDP.”

In advance of the Liberals Throne Speech promises, here are current fiscal facts that are certain to be consequential for the country’s economy and our future prosperity.

On government spending, the deficit and national debt: In three months, between April and June, the Finance Department reports the government operated a $120 billion deficit. The Government recently projected a $343 billion deficit for 2021, but this does not include Finance Minister Freeland’s recent announcement of an additional $37 billion in spending. This fiscal deficit is more than the total federal government program spending was through last year – and more than all previous federal government fiscal deficits combined through Canada’s history.

By the end of the fiscal year, many expect the deficit to be nearing $400 billion. Canada’s national debt will have climbed beyond $1.2 trillion.

On the country’s economic health: With many businesses shuttered, it is not a surprise that the Canadian economy shrank from April through June. Statistics Canada reports Canadian economic output dropped by 11.5 per cent compared with first-quarter GDP in 2020. This is the largest recorded quarterly decline since Statistics Canada began reporting quarterly figures in 1961.

There is no good news in the current economic numbers: Government revenues plummeted by 37 per cent, down $52 billion over the quarter. Household spending on goods was down by 8.4 per cent, and down by 16.7 per cent for services. Business investment fell 16.2 per cent, as a direct result of plant closures, low oil prices, and heightened economic uncertainty.

On costly mismanagement of pandemic support funds: The Fraser Institute released a report that estimates one in every four dollars of pandemic income support payments — a total of up to $22.3 billion — was sent to people who did not need support.  Financial Post columnist Diane Francis opines Canada’s pandemic funding was “distributed with a fire hose, rather than targeted at those in need.” Francis points out Canada’s stimulus package is dramatically higher than what other countries – the equivalent of 15 per cent of its GDP, compared to 10.6 per cent in Australia, five per cent in France, 8.9 per cent in Germany, and 4.9 per cent in Italy.

On Canada’s economy showing signs of systemic weakness prior to the pandemic: The International Monetary Fund (IMF) estimates the value of reduced output in Canada this year will be $113 billion. And recall prior to the pandemic the Canadian economy was absorbing the loss of $20.6 billion investment in the Teck Frontier mine project, as well as the collapse of Quebec’s $9 billion Energie Saguenay pipeline project – and a recorded $200 billion of investment lost in the Canadian resource sector since 2015. The IMF has recently calculated the total economic losses already incurred by Canadian businesses and those projected due to the pandemic will be $226 billion.

On rising personal / household debt: Today, one out of two Canadians are within $200 of insolvency at the end of each month. In fact, insolvencies are on the rise. Equifax Canada reports consumer debt is rising in Canada, reaching $1.9 trillion. Canadian households owe $177 for every $100 of disposable income (up from $106 in 1999). Just released IMF data factors that Canadian household debt is growing nearly 50% faster than the country’s economy. In a recent financial report for Global News, David Akin surmised that the pandemic “began as a public health crisis then metastasized into an economic crisis is likely to finish as a debt crisis that could end up swamping not only some governments but also hundreds of thousands — if not millions — of Canadian households.”

All the fiscal facts aside, the upcoming Throne Speech will regale for Canadians the Trudeau Government’s bold plan to spend our way to recovery – “to build back better.” This illusory panacea of unbridled government spending is summed up in the bromide offered recently by Finance Minister Freeland: “Our government has taken on more debt so Canadians didn’t have to.” What an absolutely wonderful thought – reassuring for many Canadians.

Yet, if you still subscribe to the adage that “there are no free lunches” (and you remain doubtful that “budgets will balance themselves”), then consider Ayn Rand’s cautionary statement about blissful reassurances: “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”

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/the-consequential-fiscal-facts-on-canadas-economy/

Morneau will leave an unenviable record as Finance Minister

The Niagara Independent, August 7, 2020 – If rumours come to be true, federal Finance Minister Bill Morneau will soon fall on his sword as the fall-guy for the Prime Minister and his Liberal insiders who are all caught up with the government’s WE ethics scandal.

Bill Morneau’s departure from the Ottawa scene is being forecasted throughout media, including many Liberal-friendly news agencies. The Toronto Star suggested that the Finance Minister is “blinded by his own privilege” and that he is “painfully out of touch with Canadians.” The National Post tagged Morneau as enjoying “a privileged life” having inherited a hugely profitable family business. CBC News did an investigative “gotcha” report that dissed him: “WE employees say they were told to attend 2018 holiday party in Bill Morneau’s riding.”  The Toronto Sun had a lead editorial that critically assessed the Finance Minister: “Morneau’s integrity appears to be kept in his cheque book.”

It appears inevitable that when the PM gets around to sharing his cabinet shuffle plans, Morneau’s cue will be “exit stage left.”  His leaving will lead to reviews of his record at the helm of Canada’s finances. Here is an overview of that record.

Recall that when newly elected Justin Trudeau unwrapped his first Liberal cabinet in Fall 2015 it was no surprise that he appointed a Toronto financial services businessman to manage the Liberal Government’s fiscal plan. Bill Morneau has always been the Trudeau Liberal’s finance backstop. In his first federal budget address, Morneau indicated there would be a new direction in fiscal policy, a “fundamental change” that would include substantial “investments by government.”

Despite the 2016 Budget projections, which stated the Liberal Government would balance the books in five years, the Trudeau Government ran $89.1 billion in accumulated deficits over the five years of their first mandate under Morneau’s stewardship. In those five years, spending on federal government programs increased every year and, in total, by nearly $70 billion or at a striking 27.2 per cent rate. In fact, the Trudeau Government has the dubious record of three of the highest levels of per-person program spending per year in Canadian history – and that is before the COVID-19-impacted recession.

Fast forward to the 2019 Liberal campaign platform and it is obvious that Bill Morneau and PM Trudeau had rejected the need to balance the country’s ledger. The Liberals’ second mandate was to feature a projected four years of $20 billion-plus deficits and an additional number of huge, uncosted spending items including pharmacare.

Morneau’s pre-COVID-19 fiscal management has proven costly. As a result of tax changes in the federal budgets through 2019, a vast majority (80 per cent) of middle-income Canadians have experienced increases to their personal income tax. Also, the mountain of new debt will prove an even greater burden on future generations of taxpayers. Former NDP Leader Thomas Mulcair wrote in a Sun Media editorial earlier this year: “Trudeau will have created $10,000 of new debt for every man, woman and child in Canada during his time in office. The sums are staggering…. Once again, this generation of leaders is putting everything on the maxed-out credit card of our grandchildren.”

The Trudeau Government’s pre-COVID-19 fiscal record has been brought under greater scrutiny with the pandemic pressures now bearing down on Canada’s economy. In the “fiscal snapshot” last month, Bill Morneau revealed the deficit for 2020-21 is expected to rise to $343.2 billion. This is greater than in any single year deficit during the Great Depression; ten times the projected $34.4 billion deficit before the pandemic hit!  Due to $212 billion in direct support to individuals and businesses, the federal debt-to-GDP ratio is expected to rise to 49 per cent this fiscal year, up from 31 per cent in 2019-20. (This is alarming given the 49 per cent rate is far above what the International Monetary research tells us is the optimal 26-30 per cent of GDP.)

To put all these numbers in context, this is by far the worst financial statement in Canada’s history. The federal Liberals, under the watch of Bill Morneau, are outspending all past federal governments, including those governments that had to respond to world wars and global recessions. And despite the unbridled government spending and persistent year-over-year deficits, the Finance Minister has offered no plan to reach a balanced budget. Yet, in his silence, the federal department of finance has come forward to estimate that with the current fiscal planning, deficits will last until at least 2040 (note that this estimate pre-dates COVID-19).

The Morneau fiscal plan is failing Canadians according to Fraser Institute economists who opined that “The Liberal mix of higher taxes, more government spending and deeper indebtedness did not result in a robust economy as promised…. GDP and income growth have slowed and business investment has collapsed. And that all happened before anyone had heard of COVID-19.”

If Pierre Trudeau and John Turner go down in Canadian history as “the fathers” of our national debt and the fiscal innovators who introduced the notion of “deficit financing,” then Justin Trudeau and Bill Morneau will be notorious for their seemingly unrestricted spending and being responsible for amassing the country’s burdensome $1 trillion-plus national debt.

Conservative finance critic MP Pierre Poilievre recently provided this analogy in an editorial: “The economy is like a horse carrying big bags of debt on his back up a hill. There is just one horse who must carry not only federal government debt, but also all the provincial, municipal, household and corporate debt. As of 2018 (BEFORE COVID-19!), total public and private debt equaled about 356 percent of GDP. So, the horse carried more than three and a half times his weight that year…. [Now] total private and public debt could reach 400 percent of GDP by the end of this fiscal year…. these debts will break the horse’s back. Whispering in his ear about imaginary “balance sheets” will not stop him from collapsing. He is a horse after all. Not a unicorn.”

This dark assessment of Canada’s financial situation is a marked difference from the Liberals’ sunny-days prediction that “a budget will balance itself.” If one is to accept ministerial responsibility, the dismal reality of today’s numbers must be attributed to the fiscal stewardship of Minister Morneau. And it is for his record as finance minister that Bill Morneau should be removed from his cabinet post, and not because of some PM power play to save face in the aftermath of the WE scandal.

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/morneau-will-leave-an-unenviable-record-as-finance-minister/

The staggering costs of the Government’s response to the pandemic

Finance Minister Bill Morneau will provide an “economic update” July 8.

The Niagara Independent, July 3, 2020 – It has been referred to as Canadians’ “second war” – what will be our collective efforts to survive the ensuing national economic crisis brought about by government’s response to the coronavirus pandemic. The federal and provincial governments have been spending seemingly limitless amounts of money to support individuals and businesses through a staged shutdown of the economy. Today, as the shutters are being removed across the country, Canadians are left to assess the costs.

One variable is Canada’s lost economic activity. The International Monetary Fund (IMF) has calculated losses incurred by Canadian businesses and projected estimates for the coming years. The IMF projects Canada’s GDP this year will be 6.5 percent below that of 2019, which was pegged at $1.7 trillion. Therefore, the value of reduced output in 2020 is $113 billion. By the time we account for all economic losses through the duration of the multi-year pandemic, economists are expecting costs for Canada to be at least double this amount — $226 billion lost to our economy.

While the Canadian business community will carry forward its diminished financial standing, governments will be managing their unwieldy deficits and weighty debt loads. Consider the challenging fiscal situation Canada was in before the coronavirus scare. Last year total federal government spending was $346 billion and revenues were $332 billion, leaving an operational deficit of $14 billion. Provincial and territorial spending totalled $449 billion and revenues $440 billion, leaving an operational deficit of $9 billion. Total federal and provincial government net debt totalled $1.4 trillion – a sum that was 61 per cent of GDP. And when one factors in promised pension and health liabilities over the next 30 years for all levels of government, the debt is projected to be $2.3 trillion or 104 per cent of the country’s GDP.

Now, consider the federal government’s unprecedented spending spree which will result in Canada’s federal debt reaching an astonishing $1 trillion. Canada’s Parliamentary Budget Office (PBO) Yves Giroux recently estimated this year’s federal deficit to reach $256 billion and he parsed numbers relating to the government’s pandemic spending for Members of Parliament. In part, the PBO reported:

  • the government is spending a total of $169 billion on income support programs with statistics indicating that, by the end of April, three million Canadians had loss their job with the closure of non-essential businesses;
  • Canada Emergency Response Benefit (CERB) is providing $2,000 monthly to more than 8.4 million Canadians and will cost a total of $71.3 billion – more than the allotted $60 billion budget;
  • extending the CERB by an additional eight weeks through the summer (as the government just did ) will cost $17.9 billion; and,
  • the federal wage subsidy program is currently being underused by businesses – originally provided with a $45 billion budget, as of June 15 the government has approved only $13.28 billion in payroll to 223,918 companies.

These numbers indicate businesses are simply closing rather than attempting to manage through the shutdown period; millions of Canadians will not have their pre-pandemic job to go back to in the weeks ahead.

Buckling to the pressure applied by Opposition MPs and business groups, the federal government will provide a fiscal “snapshot” of our country’s finances to be delivered by Finance Minister Bill Morneau July 8.  PM Justin Trudeau explains, “This will give Canadians a picture of where our economy is right now, how our response compares to that of other countries, and what we can expect for the months to come.”  PM Trudeau stated his Government could not provide any more than a snapshot at this time. “I’ve consistently said that an economic and fiscal update would be unrealistic right now because it automatically includes projections for a year, three years, five years ahead of time, which quite frankly we simply couldn’t make any responsible predictions about.”

Though the PM does not wish to share his Government’s current thinking on the country’s fiscal course, there are certain realities that foreshadow what the “second war” will mean for Canadians. The increased debt must be financed and this signals the need to raise taxes – either immediately or for future generations (or both). Former NDP Leader Thomas Mulcair states the Trudeau Government has created $10,000 of new debt for every man, woman and child. “This generation of leaders is putting everything on the maxed-out credit card of our grandchildren. One of the greatest inequalities in our society is that which exists between generations and it’s getting more and more unfair.”

Paying for this mountain of new debt has the potential to sink Canadians’ fortunes. It is also expected to burden the next generation of taxpayers through the whole of their working lives (hence the defining term “Generation Screwed”). Today, one and two Canadians are within $200 of insolvency at the end of each month. Before the pandemic, Canadian households owed $176 for every $100 of disposable income – and now this situation has worsened. If the government attempts to spare today’s overburdened Canadian household, the debt does not go away and will still need to be paid. In a National Post column reporting the prognosis of various financial analysts, John Ivison concludes: “Ottawa’s COVID-19 debt binge runs the very real risk of ruining the next generation.”

Professor Don Savoie, Canada Research Chair in public administration and governance at the Université de Moncton, in an interview with the Hill Times this week, commented: “…there’s going to have to be some realignment between revenues and spending and that’s going to require an incredible amount of political will. It doesn’t require much political will when you’re spending every day. It requires political will, when you deal with the hangover and that hangover is going to be very, very, very difficult to manage… It takes an incredible jolt at the wheel to turn off spending. So when people get accustomed to receiving benefits from the government, it’s very difficult to cut it back…”

When the Prime Minister announced the July 8 fiscal snapshot, the Bloc Québécois Leader Yves-François Blanchet quipped, “I fear that the government will try to make it happen in the middle of summer in order to have people not watch it, while they will be having a beer around the barbecue.” Yet, considering what is at stake for Canadians and their pocketbooks, it is best if Canadians put down the beer, put off mealtime, and pay attention to what is said about this country’s economic predicament.

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/the-staggering-costs-of-the-governments-response-to-the-pandemic/

 

Canada Sinking In a Quagmire of Debt

The International Monetary Fund recently reported that Canada’s federal government spending is now at the highest level in Canadian history.

The Niagara Independent, January 24, 2020 — Delivering continuous deficit budgets is like spinning your wheels in mud; it’s inevitable that you will eventually get stuck. That common sense is beginning to creep into the conversations about the federal Liberal deficit spending as more Canadians are starting to appreciate what it means to be sinking in a quagmire of debt.

The Federal Finance Minister Bill Morneau recently provided an update of Canada’s finances in which he reported the government’s projected deficit is $26.6 billion for this 2019-20 fiscal year – a total of almost $7 billion more than originally planned for in his budget of last March.  Finance Minister Morneau went on to project next year’s deficit would be even higher. He pegged a budget deficit of $28.1 billion for 2020-21, but that is not accounting for several costly campaign promises – and the spending orgy the Liberals are expected to make in advance of the next election.

In his fiscal update, the Finance Minister matter-of-factly stated that the Liberal Government is planning five more years of double-digit deficits. He told Canadians the federal debt should reach $713 billion at the end of the current fiscal year and grow to $810 billion by 2024-2025. He made no mention of a balanced budget in the Liberals’ future fiscal plan.

This is noteworthy given the International Monetary Fund (IMF) recently reported that Canada’s federal government spending is now at the highest level in Canadian history. The federal Liberals, under the watch of Bill Morneau, are outspending all past federal governments, including those governments that had to respond to world wars and global recession crises. According to the IMF, spending by all levels of government in Canada accounts for more than 40 per cent of the country’s economy. This rate is well above what research indicates is the optimal size of government at 26-30 per cent of GDP. If unbridled, this government spending will jeopardize both Canada’s economic growth and our social wellbeing.

The Fraser Institute is an organization that has been consistent in its message stating that continuous deficit spending by our governments is unsustainable. In a number of fiscal reports through this past year, the Institute demonstrates that budget deficits and increasing debt have become serious fiscal challenges – if not the greatest challenge – facing the federal and many provincial governments today. Today, combined federal and provincial net debt is expected to equal 64.3% of the Canadian economy or $39,483 for every Canadian. The growing concern is the interest payments that must be paid on this debt. Money spent on interest means there will be less money available for government programs such as health care, education, and social services.

The HEC Montreal’s Centre for Productivity and Prosperity issued a report underlining that recurring federal deficits could be risky for future generations of Canadians. This policy institute warns posting continuous deficits with no deadline to balanced budgets is a risky fiscal strategy for the federal government that may just “indebt itself indefinitely.” It underscores its potentially dire outlook for intergenerational equity is its conclusion, stating: “In addition to passing part of today’s bills on to future taxpayers, Ottawa is unduly increasing their risk exposure by accumulating deficits, to the point where tomorrow’s taxpayers might be unable to enjoy the same services if interest rates were to increase significantly or if the Canadian economy experienced a serious economic crisis.”

In the next decade the Federal Government will also be pressed to meet the financial commitments to seniors. By 2030, one in four Canadians will be aged 65 and older. Today, seniors account for 17 per cent of the country’s population and the $56 billion the federal government spends on seniors’ benefits make up the single largest expense of the federal government’s budget. That line item will rise to $99 billion as “the grey tsunami” washes over Canada. In a recent report, Royal Bank of Canada warns of the consequences related to the rising costs for elderly benefits over the next ten years: “The financial demands of an older population will make it harder for governments to fund key growth priorities like education and skills development, let alone the vote-getting niche initiatives they often advance at election time.”

In a rather bleak end-of-year assessment of the country’s fiscal state of affairs, Financial Post columnist Diane Francis asks, “Who’s going to look after Canada’s economic wellbeing for the next five years?” Francis sees a troubling horizon, “Canada slips and there’s nobody to catch it, not Parliament or other levels of government. The Liberals spent five years variously pandering to environmental, regional or anti-capitalist interests… The country’s governance, like a 100-car pile-up, is a tangled mess that is transiting out of the free enterprise system every year.”

Still, when presenting his fiscal update last month, Finance Minister Bill Morneau expressed no concern in forecasting continuous and indefinite deficit budgets. No concern for the growing debt. No concern for the future generations of Canadians, nor aging seniors. And yet, for many Canadians it is now clearer that the Liberals’ cavalier approach to government deficit financing has become of great concern.

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-sinking-in-a-quagmire-of-debt/

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/