From the Fraser Institute

By Jason Clemens and Jake Fuss

72 per cent of respondents in Canada supported a new narrowly-targeted tax on wealth for the top 1 per cent to pay for new government services and/or a guaranteed annual income. But support dropped to only 16 per cent when the plan relied on increasing the GST to 20 per cent. The implications of the data are clear—Canadians support new and expanded programs when they believe someone else will pay for them.

In the wake of the 2024 federal budget, several public opinion polls have been released with potential implications for the future direction of federal policy. But unless the polls are interpreted correctly, the results could be misconstrued and lead to further damaging federal policies.

Most polls continue to show the federal Opposition significantly outperforming the governing Liberals and their partners in government, the NDP. Moreover, polls completed after the Trudeau government released the federal budget earlier this month indicate Canadians generally do not agree with the overall policy direction of the Trudeau government.

For example, according to a recent Leger poll, 56 per cent of Canadians believe the country is “headed in the wrong direction,” 59 per cent “perceive the economy as weaker,” only 19 per cent agree the government’s strategy “will benefit their personal finances,” and only 33 per cent believe the government is “taking positive steps to grow the Canadian economy.”

These results align with a recent Angus Reid poll, which found that 59 per cent of respondents think federal spending had grown too large and spending cuts were needed.

A number of pollsters, however, have noted the gulf between the overall lack of support for federal policies (including the recent budget) and strong support for individual initiatives in the budget. According to the Leger poll, for instance, 73 per cent of respondents support the new $6 billion Canada Housing Infrastructure Fund, 71 per cent support the new National School Food Program, and 67 per cent support the new $15 billion Apartment Construction Loan Program.

But these results are misleading because they only reflect one side of the question—the benefits. In other words, the polls ask respondents if they support specific programs but exclude any costs. When Canadians understand the costs, their attitudes change. They’re concerned about the level of federal spending because they see the costs—rising taxes, mounting debt and increasing interest costs.

Not surprisingly, when pollsters connect new or expanded programs with their costs, support for those programs declines. Consider a 2022 Leger poll that asked respondents about their support for pharmacare, dental care and the federal $10-a-day daycare program.

Support for the three programs is strong when no costs are attached: 79 per cent for pharmacare, 72 per cent for dental care and 69 per cent for daycare. But the level of support plummets when an increase in the GST is attached to the new program. Support for pharmacare drops to 40 per cent, support for dental care drops to 42 per cent, and daycare support drops to 36 per cent.

This general idea of supporting programs—when someone else pays for them—aligns with a 2022 poll, which found that 72 per cent of respondents in Canada supported a new narrowly-targeted tax on wealth for the top 1 per cent to pay for new government services and/or a guaranteed annual income. But support dropped to only 16 per cent when the plan relied on increasing the GST to 20 per cent. The implications of the data are clear—Canadians support new and expanded programs when they believe someone else will pay for them.

This is an important consideration because the Trudeau government has borrowed to pay for most of its new and expanded programs, meaning that the effect of the new spending would be more apparent if the government raised taxes—rather than borrowed—to pay for it. The costs of the government’s approach, however, are showing up in Ottawa’s debt interest costs, which this year will reach a projected $54.1 billion—more than the federal government spends on health-care transfers to the provinces.

As Nobel laureate Milton Friedman said, there’s no such thing as a free lunch. When polling data treat new and expanded programs as costless, they provide misleading results and policy signals to politicians. It’s essential that policymakers understand the degree to which Canadians—after they understand the costs—actually support these initiatives.

From the Fraser Institute

By Steven Globerman

Political developments in the U.S. over the past few years have substantially increased the risk of any investment that relies on unrestricted access to the U.S. market

Last week, the Trudeau government and the Ford government announced a new multi-billion dollar taxpayer-funded subsidy for Honda to expand its Alliston, Ontario plant to manufacture electric vehicles (EV) and host a large EV battery plant. Eventually, the direct and indirect subsidies could total $10 billion from the two governments.

The Honda announcement follows earlier deals with Northvolt, Stellantis and Volkswagen to build and operate EV battery and auto assembly plants in Ontario. According to the Parliamentary Budget Officer, these three deals may total $50.7 billion after accounting for the cost of government borrowing to finance the subsidies and foregone corporate tax revenue from tax abatements tied to production.

Clearly, if future taxpayers across the country (not just in Ontario) are to avoid a huge additional tax burden or suffer reductions in government services, a lot needs to go right for Canada’s EV industry.

In particular, there must emerge sufficient market demand for EVs so these “investments” in the EV auto sector will be fully paid for by future tax revenues from corporate and personal income taxes levied on companies and workers in the EV sector. During their joint announcement of the Honda deal, both Prime Minister Trudeau and Premier Ford ignored this elephant in the room while claiming that the Honda deal will mean 240,000 vehicles a year manufactured at the site and 4,200 jobs preserved, while adding another 1,000 jobs.

By way of perspective, in 2023 around 185,000 EV vehicles were sold in Canada—about 11 per cent of all new cars sold in Canada that year. This is considerably less than the target capacity of the Honda complex and the total expected production capacity of Canada’s EV sector once all the various announced subsidized production facilities are in operation. In contrast, 1.2 million EVs were sold in the United States.

The demand for EVs in Canada will likely grow over time, especially given the increased incentive the federal government now has to ensure, through legislation or regulation, that Canadians retire their gas-powered vehicles and replace them with EVs. However, the long-run financial health of Canada’s EV sector requires continued access to the much larger U.S. market. Indeed, Honda’s CEO said his company chose Canada as the site for their first EV assembly plant in part because of Canada’s access to the U.S. market.

But political developments in the U.S. over the past few years have substantially increased the risk of any investment that relies on unrestricted access to the U.S. market. The trade protectionist bent of Donald Trump, the Republican nominee in the upcoming presidential election, is well known and he reportedly plans to impose a broad 10 per cent tariff on all manufactured imports to the U.S. if elected.

While the Canada-U.S.-Mexico Free Trade Agreement ostensibly gives Canadian-based EV producers tariff-free access to the U.S. market, Trump could terminate the treaty or at least insist on major changes in specific Canadian trade policies that he criticized during his first term, including supply management programs for dairy products. The trade agreement is up for trilateral review in 2025, which would allow a new Trump administration to demand political concessions such as increased Canadian spending on defence, in addition to trade concessions.

Nor would the re-election of President Joe Biden immunize Canada from protectionist risks. Biden has been a full-throated supporter of unionized U.S. auto workers and has staked his administration’s legacy on the successful electrification of the U.S. transportation sector through domestic production. Given his government’s financial commitment to growing a domestic EV sector, Biden might well impose trade restrictions on Canada if Canadian exports start to displace domestic production in the U.S.

In short, Canadian politicians, most notably Justin Trudeau and Doug Ford, have staked the future of Canada’s heavily subsidized domestic EV sector on the vagaries of the U.S. political process, which is increasingly embracing “America First” industrial policies. This may turn out to be a very costly gamble for Canadian taxpayers.