{"id":15016,"date":"2022-09-25T09:38:47","date_gmt":"2022-09-25T13:38:47","guid":{"rendered":"https:\/\/www.bygeorgejournal.ca\/?p=15016"},"modified":"2023-07-24T20:38:55","modified_gmt":"2023-07-25T00:38:55","slug":"trudeau-government-vs-canadas-financial-experts","status":"publish","type":"post","link":"https:\/\/www.bygeorgejournal.ca\/?p=15016","title":{"rendered":"Trudeau government vs. Canada\u2019s financial experts"},"content":{"rendered":"

The Niagara Independent, September 23, 2022 \u2013<\/em> Parliament resumed this week and on the first day back the government introduced two pieces of legislation to signal its focus on helping Canadians cope with the rising cost of living. Prime Minister Justin Trudeau forecasted the government will spend billions of dollars to provide relief from the financial strain being inflicted by inflation. Yet, according to Canada\u2019s leading financial experts, the Trudeau government\u2019s unrestrained spending is fueling the country\u2019s inflation and exacerbating Canadians\u2019 financial headaches.<\/p>\n

On Tuesday, Trudeau\u2019s team introduced Bill C-30, which will double the next two GST rebate cheques to Canadians, as well as introduce a dental care subsidy to uninsured parents with children under 12. It also introduced Bill C-31, which will enact a plan to send a one-time, \u201crent support\u201d cheque of $500 to lower-income Canadians. Liberal MPs state that these measures are a targeted approach to supporting low-income individuals and families.<\/p>\n

The exact costs for these government payouts amount to $4.7 billion. It is estimated that the GST rebate cheques will cost $2.5 billion. The dental care payout will cost $650 per child, and it is estimated that 500,000 children will qualify. The total cost of the subsidy is nearly $1 billion dollars. The rent support cheques are estimated to cost the government $1.2 billion.<\/p>\n

The $4.7 billion price tag on these new initiatives is added to the $9 billion accountability plan announced by Finance Minister Chrystia Freeland in June. That government package included inflation-indexed increases to the Canada Child Benefit, Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement, as well an enhanced Canada Workers Benefit.<\/p>\n

So, this year the Trudeau government has announced new program spending of $13.7 billion. This is over and above its 2022 federal budget announcement of $31 billion of new spending over the next five years (resulting in a fiscal deficit for 2022-23 of $52.8 billion).<\/p>\n

PM Trudeau announced the latest \u201caffordability package\u201d while at a caucus retreat in New Brunswick a week ago. Trudeau explained in his presentation to the media corps, \u201cMy own perspective is Canadians are almost entirely preoccupied with the big issues we\u2019re facing, whether it\u2019s the rise in the cost of living, global inflation\u2026 We are retaining fiscal firepower and at the same time ensuring that those who need support don\u2019t get left behind.\u201d<\/p>\n

Trudeau stated that the government\u2019s $4.7 billion spending on new programs \u201cis sufficiently targeted that we are confident they will not contribute to inflation.\u201d\u00a0The PM crowed, \u201cThese measures all put people at the centre of our plan to grow the economy. They are targeted to the middle class and people working hard to join it, while we continue to be responsible with public finances.\u201d<\/p>\n

Trudeau then repeated, \u201cThe help we\u2019re announcing today will make a big difference for the people who get it in a targeted way that will not stoke inflation.\u201d<\/p>\n

Though not questioned by the mainstream media in attendance, the PM\u2019s assertions did not reassure Canada\u2019s financial community. In fact, there is a consensus view from a chorus of financial experts that unbridled government spending is problematic.<\/p>\n

Derek Holt, head of capital markets economics at Scotiabank, sarcastically responded to Justin Trudeau\u2019s statements. In a note to bank clients he wrote, \u201cAny belief that it will ease inflationary pressures must have studied different economics textbooks.\u201d<\/p>\n

Holt reasoned \u201cit seems sensible to assume that this will add to pressures on measures of core inflation\u201d and it will \u201caggravate the Bank of Canada\u2019s stance on monetary policy.\u201d<\/p>\n

Scotiabank\u2019s financial expert also made this forecast, \u201cThe information today suggests that the Bank of Canada is likely to be dragged along by the Federal Reserve with domestic fiscal stimulus reinforcing the likelihood that the policy rate breaches 4 per cent by December, if not October.\u201d<\/p>\n

BMO senior economist Robert Kavcic was also critical of the government\u2019s continued spending, \u201cWe\u2019re not going to deny that there are households seriously in need of help right now in this inflationary environment. But, from a policy perspective, we all know that sending out money as an inflation-support measure is inherently inflationary.\u201d<\/p>\n

Avery Shenfeld, the chief economist for CIBC also warned his bank\u2019s clients, stating \u201cwhile there are times where fiscal largesse is just what the economy needs, these aren\u2019t such times.\u201d<\/p>\n

Shenfield observed, \u201cIn a period of high inflation and excess demand, cutting taxes or handing out cheques can add fuel to the inflationary fire, and make the job of a central bank that\u2019s raising rates to cool demand all that more troublesome.\u201d<\/p>\n

Shenfeld also forecasts potential dark clouds on the horizon for a government that has no financial discipline, \u201cA recession is a distinct risk in the next two years, so this year\u2019s revenue windfall might not last long. If another global crisis comes along in future years to sink growth and inflation, whatever fiscal room we can build up now will come in handy.\u201d<\/p>\n

Consider the rising cost of financing the federal debt with increased interest rates. In the recent budget, with the government\u2019s planned deficit spending, the interest payments on the national debt will rise to $42.9 billion by 2027. This figure is factoring a near-zero interest rate, however with interest rates at three or four per cent, the government will be paying triple or quadruple that amount in servicing the debt. With higher interest rates, future governments\u2019 ability to carry the debt is increasingly difficult.<\/p>\n

Each day seems to bring more unsettling news related to inflation and interest rates.<\/p>\n