Opinion
PM Trudeau’s “Monetary Policy” gaffe could cost the Liberals the election. But will it?
Back in 1993 things were not going well for Canada’s Progressive Conservative Government. Brian Mulroney’s government had served 2 mandates and Canadians were clearly ready to move on. The Conservatives decided Kim Campbell would be the best leader to bring a renewed excitement to their reelection hopes. Campbell was a fresh face and that was important to the party which was losing support quickly. She was also from Vancouver, which was a nice change for the party normally represented by leaders from Ontario or Quebec. Even more importantly, when she won the leadership she would become the first female leader of a country in North America. As Canadians would discover just a few months later though, no one cared about any of that. That campaign did not go well. The Conservatives not only lost. They were decimated right out of official party standing. The governing party won just 2 seats in the entire nation (Jean Charest in Quebec, and Elsie Wayne in New Brunswick). Kim Campbell did not even win her own seat. Henceforth the Reform Party represented the Conservative voice for the next two elections.
For one reason or another, Canadians simply did not connect with Kim Campbell. One of the biggest gaffes of that election campaign came when a reporter pressed Campbell for details on an issue and she replied “The election is not a time to discuss serious issues.” That was the wrong answer. Despite what she may have truly meant, all Canadians heard was “I don’t need to explain anything to you.”. That was exactly the wrong thing to say at the worst possible time.
Why bring this up now, 28 years later? Well Prime Minister Justin Trudeau has made his first major gaffe of this election campaign. And for those who care about monetary policy (which should be everyone who pays taxes and works or has savings, etc) it’s very likely as stunning a statement as Kim Campbell made three decades ago.
First some background. In 2021, Canadians find themselves in an astounding situation. When the covid pandemic hit last year governments all over the world shut down their economies for weeks, and then months. Government stimulus was the order of the day and Canada’s was among the most generous in the world. People were paid to stay at home. Businesses were paid to continue to provide jobs to people working from home. Landlords were paid to keep tenants afloat. All in all, government money is being spent at unprecedented rates.
To pay for all this the Trudeau government attempted to pass a bill through Parliament which would allow it to raise taxes at will without a budget and without even coming back to ask Parliament to present a plan or ask for approval. That didn’t go over so well. But instead of turning back the taps, or introducing a budget with higher taxes the government worked out a plan with the Bank of Canada. How this works basically is that every month the Bank of Canada prints out a few billion dollars, and the government uses that to pay for all the stimulus they want. Over the first year of covid that totalled about 350 Billion dollars!
The Bank of Canada has left the core function expressed in its mandate in order to print all this extra money. Despite it’s best efforts to decouple inflation from the printing of extra money, it’s not working. Canada’s inflation rate has been blowing through the target of 2% month after month after month.
This is the the mandate as expressed by the Bank of Canada itself on its website.
The Bank of Canada is the nation’s central bank. Its mandate, as defined in the Bank of Canada Act, is “to promote the economic and financial welfare of Canada.” The Bank’s vision is to be a leading central bank—dynamic, engaged and trusted—committed to a better Canada.
The Bank has four core functions:
- Monetary policy: The Bank’s monetary policy framework aims to keep inflation low, stable and predictable.
- Financial system: The Bank promotes safe, sound and efficient financial systems within Canada and internationally.
- Currency: The Bank designs, issues and distributes Canada’s bank notes.
- Funds management: The Bank acts as fiscal agent for the Government of Canada, managing its public debt programs and foreign exchange reserves.
The Bank of Canada’s mandate is expiring at the end of this year and the new mandate could change. Some are saying the Bank should continue to print money at an unprecedented rate and Canadians will learn to live with high inflation. Considering this drives up the cost of everything from our homes and vehicles, to the food we eat there could hardly be a more important issue. That’s why PM Trudeau’s response to this question in Vancouver this week is so stunning. When asked if he would consider a higher tolerance for inflation going forward here’s what he said.
Reporter Question about the renewal of the Bank of Canada mandate due at the end of 2021:
-Do you have thoughts about that mandate? Would you consider a slightly higher tolerance for inflation?
Prime Minister Justin Trudeau: “When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy.”
Of course this spurred an immediate reaction from the opposition Conservatives. That oppostion is perhaps best summed up in this address from Pierre Poilievre.
The question is, will Canadians punish Prime Minister Trudeau for either lacking basic economic knowledge, or not caring about it? Kim Campbell failed to win her own seat, but she did not seem to connect well with Canadians at all even before that election campaign. Justin Trudeau has so far been immune to gaffes. Even though he’s had more than 5 years in government, millions of Canadians stand by him loyally. Will this time be any different?
From the Fraser Institute
By Tegan Hill and Jake Fuss
From 2014 to 2022, inflation-adjusted total business investment (in plants, machinery, equipment and new technologies but excluding residential construction) in Canada declined by C$34 billion. During the same period, after adjusting for inflation, business investment declined by a total of $3,748 per worker
According to the recent federal budget, the Trudeau government plans to increase the inclusion rate from 50 per cent to 66.7 per cent on capital gains over $250,000 for individuals and on all capital gains realized by corporations and trusts. Unfortunately, this tax hike will be the final nail in the coffin for business investment in Canada, which likely means even harder economic times ahead.
Canada already faces a business investment crisis. From 2014 to 2022, inflation-adjusted total business investment (in plants, machinery, equipment and new technologies but excluding residential construction) in Canada declined by C$34 billion. During the same period, after adjusting for inflation, business investment declined by a total of $3,748 per worker—from $20,264 per worker in 2014 to $16,515 per worker in 2022.
While business investment has declined in Canada since 2014, in other countries, including the United States, it’s continued to grow. This isn’t a post-COVID problem—this is a Canada problem.
And Canadians should be worried. Businesses investment is key for strong economic growth and higher living standards because when businesses invest in physical and intellectual capital they equip workers with the tools and technology (e.g. machinery, computer programs, artificial intelligence) to produce more and provide higher quality goods and services, which fuels innovation and higher productivity. And as firms become more efficient and increase profits, they’re able to pay higher wages, which is why business investment remains a key factor for higher incomes and living standards.
The Trudeau government’s policies—increased regulation, particularly in the energy and mining sectors (which makes Canada a relatively unattractive place to do business), higher and uncompetitive taxes, and massive federal deficits (which imply future tax increases)—have damaged business investment.
Unsurprisingly, weak business investment has correlated with a weak economy. In the fourth quarter of 2023, real economic growth per person ($58,111) officially fell below 2014 levels ($58,162). In other words, Canadian living standards have completely stagnated. In fact, over the last decade economic growth per person has been the weakest on record since the 1930s.
Instead of helping fix the problem, the Trudeau government’s capital gains tax hike will further damage Canada’s economy by reducing the return on investment and encouraging an exodus of capital from the country. Indeed, capital gains taxes are among the most economically-damaging forms of taxation because they reduce the incentive to invest.
Once again, the Trudeau government has enacted a policy that will deter business investment, which Canada desperately needs for strong economic growth. The key takeaway for Canadians? Barring a change in policy, you can expect harder times ahead.
Authors:
Who knew when we tuned in Saturday night to Hockey Night In Canada that we would be witnessing playoff history. Nay, not just playoff history but hockey history. According to what we saw and heard on HNIC just ONE TEAM played on Saturday. And they lost. It goes without saying that the team was HNIC’s beloved Toronto Maple Leafs.
Those of us who’d stuck with the telecast all evening could’ve sworn there was another team on the ice in black and gold. Rumour has it they were the Boston Bruins, but don’t quote us on that. Also, take it as a rumour that Boston’s 3-1 win gave them a 3-1 lead in games over Toronto heading back to Boston for what most expect will be the coup de grace for the blue and white. Again.
But when time came to discuss the game afterward the Toronto-based panel told us that the Leafs had beaten themselves. Yes, in some hockey version of metaphysics Toronto had transcended the third dimension. The Bruins were like The Fugitive, lurking far out of sight. Brad Marchand had had nothing to do with breaking up Toronto’s neutral-zone speed nor Charlie McAvoy clearing the front of their net. Jeremy Swayman, who he?
Instead the talking heads dissected the loss in shades of blue.
For those who were washing their hair or another vital task on Saturday, the Leafs had more story lines than a season of Curb Your Enthusiasm (insert your joke here), They finally got their migraine-afflicted star William Nylander back in the fold before a delirious Scotiabank crowd who’d probably paid about a $1000 a ticket to attend. But their star sniper Auston Matthews (allegedly) had food poisoning or a gall stone or a tee time next week back home in Scottsdale. Hard to say.
There was also a goaltending controversy, a Mitch Marner controversy and a Keith Pelley controversy (more on MLSE’s new CEO in a moment). And the, you know, 1967 thing. Despite the hysteria of their long-suffering fans at puck drop, postgame analysts hinted the Leafs seemed to be disinterested. Or, to those who actually watched the game, they were schooled by a better Boston team.
By the middle of the second period, despond and a 3-0 deficit had settled on the Leafs. Despite being the ONLY TEAM on the ice their well-compensated stars were bitching at each other on the bench. While Matthews looked glumly at his pals, Marner had a hissy fit throwing his gloves to the floor. Nylander lip-synched a rebuke to Marner along the lines of Grow up, this ain’t junior hockey. Did we say the crowd booed them off the ice after the second period? Yeah, that too.
Which led mild-mannered Kelly Hrudey to scold Marner for a bush-league behaviour in the break. Remember, Hrudey’s the nice guy on the HNIC panel. Where others see an alligator chomping on their leg Kelly sees a chance to get up-close with nature. So the rebuke for Marner was incendiary. By the time they dropped the pick for the third period you’d have thought Bob Cole wasn’t the only person to pass away this week. Gloom.
Making matters worse, Matthews was nowhere to be found. (According coach Keefe, the doctors had pulled him from the game. Whatever.) When the contest ended with a Toronto loss, the postgame chatter was once more obsessed with Toronto’s failings, as if another team were not having its way on the ice. Where was the effort? Where was the intensity promised when Leafs management spread dollars like Easter candy among its Core Four?
Kevin Bieksa, typically the most salty one on the panel, reminded everyone there was a Game 5 Monday and that 3-1 leads have been overcome. But with Toronto’s success in comebacks being nil he sounded like a guy trying to sell you a penny mining stock.
The dressing-room afterward was mint. “You know what, that’s just the way we are,” Nylander said. “I mean we expect a lot from each other, and we love each other.”
“I don’t think there’s any (frustration),” Marner added unconvincingly. “We’re grown men. We were talking about plays out there that we just want to make sure we’re all 100 percent on and know what we’re doing… We’re not yelling at each other because we hate each other.”
Chris Johnston of The Athletic called it the end of the Maple Leafs as we know them. “They’re making more mistakes at five-on-five, they’re soundly losing the special-teams battle, and they’ve transformed from being one of the NHL’s best offensive teams in the regular season to one that can’t score more than two goals per night in the playoffs. Wash, rinse, repeat.”
Coach Sheldon Keefe, whose shelf life has about 60 minutes left, was enigmatic in the face of cruel destiny. “You can question a lot of things; you can’t question the effort,” he said.
He’s right about one thing. When this first-round ends in ignominy there will be plenty of questions from Pelley, newly installed at the top of the MLSE pyramid. Such as, why should I keep this management team that teases Waygu beef in-season but delivers ground chuck in the playoffs? It’s long been said that the league the Leafs have been built for doesn’t exist in the postseason. So why keep pretending it does?
For those not in the know, Pelley has spent the last few years dealing with the Saudi’s LIV golf enterprise in his role as CEO of what used to be known as the European Tour. (Insert your barbarism reference) So he’s used to dealing with nasty situations.
Maybe his first act on the Leafs file is reminding everyone that two teams play each other in the playoffs, and it might be a good idea to learn from what the winners are doing.
Bruce Dowbiggin @dowbboy is the editor of Not The Public Broadcaster A two-time winner of the Gemini Award as Canada’s top television sports broadcaster, he’s a regular contributor to Sirius XM Canada Talks Ch. 167. Now for pre-order, new from the team of Evan & Bruce Dowbiggin . Deal With It: The Trades That Stunned The NHL & Changed Hockey. From Espo to Boston in 1967 to Gretz in L.A. in 1988 to Patrick Roy leaving Montreal in 1995, the stories behind the story. Launching in paperback and Kindle on #Amazon this week. Destined to be a hockey best seller. https://www.amazon.ca/Deal-Trades-Stunned-Changed-Hockey-ebook/dp/B0D236NB35/
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