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Canada may not be broken but Ottawa is definitely broke: Jack Mintz

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7 minute read

From the MacDonald Laurier Institute

By Jack Mintz

With growth flat and interest payments ballooning there’s no room for new spending unless deficits are cranked up again — a bad idea

In her economic update Tuesday, Finance Minister Chrystia Freeland just couldn’t help taking a swipe at Leader of the Opposition Pierre Poilievre when she declared: “Canada is not and has never been broken.” In the early 1990s, Canada did come close to needing IMF assistance, but Liberal finance minister Paul Martin’s 1995 budget pulled us back from the abyss by cutting program spending 20 per cent and putting the country back on a path towards balanced budgets. We did receive short-term finance from the IMF during the currency crisis of 1962, but we have never reneged on public debt, unlike hapless Argentina, which has defaulted nine times since its independence in 1816.

Canada may not be broken but the federal government is all but broke and is clearly running out of steam. With a weak economy growing only a little faster than population, there is not a lot of spending room left, not unless deficits and debts are cranked up again. As it is, debt as share of GDP jumps from 41.7 per cent in fiscal year 2022/23 to 42.4 per cent in 2023/24. So much for the fiscal anchors we were promised.

After that, the finance minister predicts, debt as a share of GDP will fall ever so gently to 39 per cent over the following four years. I am quite skeptical about five-year forecasts, especially from a government that over eight years has failed to keep any deficit and debt promises. The 2015 election commitment to cap the deficit at $10 billion is long gone. So is the promise to keep the debt/GDP ratio from rising.  Even before the pandemic, federal debt was creeping back up to over 30 per cent of GDP. After eye-popping spending during COVID, any plan to return to pre-pandemic levels has been ditched. Instead, we just accept debt at 40 per cent of GDP and move on. And if a recession hits, you can bet your bottom dollar — which may be the only dollar you have left — that federal debt/GDP will reach a new plateau, also never to be reversed.

As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” With growing public debt charges, expenditures are rising 13.6 per cent over the next three years, faster than revenues, which are forecast to grow only 12.2 per cent. Much of this spending growth is due to interest payments that are rising by almost a half to $53 billion in 2025/26. That is a ton of money — many tons of money — that could have gone to health care, defence or even, yes, general tax cuts. Instead, we are filling the pockets of Canadian and foreign investors who find Canadian bonds very attractive at the interest rates they’re currently paying.

Small mercies: At least the Liberals feel obliged to say they will keep the lid on spending in the short term. Thus they forecast program spending rising by only 10.5 per cent over three years, with a program review expected to trim its growth by $15 billion. On the other hand, the forecast for deficits averages close to $40 billion a year for the next three years.

Economic updates used to be just that, reports on how things are going, but increasingly they are mini-budgets that introduce new measures. With the Liberals sinking in the polls, housing affordability is the focus. But with higher interest rates and more stringent climate and other regulations adding to construction costs, it is unclear how much more housing supply will grow even with the new measures. New spending over five years includes a $1-billion “affordable housing fund” and the previously announced $4.6 billion in GST relief on new rental construction. There’s also $15 billion in loans for apartment construction and $20 billion in low-cost, government-backed CMHC financing, neither of which adds to the deficit.

When money is scarce, of course, nanny-state regulations come into play, as well. A “mortgage charter” will guide banks on how to provide relief for distressed owners (even though banks already prefer to keep people in their homes rather than foreclose). Deductions incurred by operators of short-term rentals will be denied in those municipalities and provinces that prohibit such rentals. Temporary foreign workers in construction will get priority for permanent residence.

The housing plan wasn’t the only focus in the economic statement. To address affordability and climate change, the current government takes pride in its pyramid of budget-busting subsidies for clean energy and regulations dictating private-sector behaviour regarding such things as “junk fees” and grocery prices. There’s also GST relief for psychotherapists and more generous subsidies for journalists and news organizations. (I suppose I should bend a knee to the minister and doff my cap.)

What’s missing in the statement? It barely mentions the country’s poor productivity performance. And you will word-search in vain for “tax reform,” “general tax relief” or “deregulation” aimed at spurring private sector investment. No mention is made that accelerated tax depreciation for capital investment, introduced in 2018, is being phased out beginning January 1st, which will discourage private investment, including in housing construction. Instead, the Liberal economic plan is all about more government, not less, to grow the economy. Without the private sector, that’s not going to work.

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Business

Canada may escape the worst as Trump declares America’s economic independence with Liberation Day tariffs

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MXM logo  MxM News

Quick Hit:

On Wednesday, President Trump declared a national emergency to implement a sweeping 10% baseline tariff on all imported goods, calling it a “Declaration of Economic Independence.” Trump said the tariffs would revitalize the domestic economy, declaring that, “April 2, 2025, will forever be remembered as the day American industry was reborn.”

Key Details:

  • The baseline 10% tariff will take effect Saturday, while targeted “reciprocal” tariffs—20% on the EU, 24% on Japan, and 17% on Israel—begin April 9th. Trump also imposed 25% tariffs on most Canadian and Mexican goods, as well as on all foreign-made cars and auto parts, effective early Thursday.

  • Trump justified the policy by citing foreign trade restrictions and long-standing deficits. He pointed to policies in Australia, the EU, Japan, and South Korea as examples of protectionist barriers that unfairly harm American workers and industries.

  • The White House estimates the 10% tariff could generate $200 billion in revenue over the next decade. Officials say the added funds would help reduce the federal deficit while giving the U.S. stronger leverage in negotiations with countries running large trade surpluses.

Diving Deeper:

President Trump on Wednesday unveiled a broad new tariff policy affecting every imported product into the United States, marking what he described as the beginning of a new economic era. Declaring a national emergency from the White House Rose Garden, the president announced a new 10% baseline tariff on all imports, alongside steeper country-specific tariffs targeting longstanding trade imbalances.

“This is our Declaration of Economic Independence,” Trump said. “Factories will come roaring back into our country — and you see it happening already.”

The tariffs, which take effect Saturday, represent a substantial increase from the pre-Trump average U.S. tariff rate and are part of what the administration is calling “Liberation Day” for American industry. Reciprocal tariffs kick in April 9th, with the administration detailing specific rates—20% for the European Union, 24% for Japan, and 17% for Israel—based on calculations tied to bilateral trade deficits.

“From 1789 to 1913, we were a tariff-backed nation,” Trump said. “The United States was proportionately the wealthiest it has ever been.” He criticized the establishment of the income tax in 1913 and blamed the 1929 economic collapse on a departure from tariff-based policies.

To underscore the move’s long-anticipated nature, Trump noted he had been warning about unfair trade for decades. “If you look at my old speeches, where I was young and very handsome… I’d be talking about how we were being ripped off by these countries,” he quipped.

The president also used the moment to renew his push for broader economic reforms, urging Congress to eliminate federal taxes on tips, overtime pay, and Social Security benefits. He also proposed allowing Americans to write off interest on domestic auto loans.

Critics of the plan warned it could raise prices for consumers, noting inflation has already risen 22% under the Biden administration. However, Trump pointed to low inflation during his first term—when he imposed more targeted tariffs—as proof his strategy can work without sparking runaway costs.

White House officials reportedly described the new baseline rate as a guardrail against countries attempting to game the system. One official explained the methodology behind the reciprocal tariffs: “The trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” adding that the tariffs are “half of what they could be” because “the president is lenient and he wants to be kind to the world.”

In addition to Wednesday’s sweeping changes, Trump’s administration recently imposed a 25% tariff on Chinese goods tied to fentanyl smuggling and another 25% on steel and aluminum imports—revoking previous carve-outs for countries like Brazil and South Korea. Future tariffs on semiconductors, pharmaceuticals, and raw materials such as copper and lumber are reportedly under consideration.

Trump closed his remarks with a message to foreign leaders: “To all of the foreign presidents, prime ministers, kings, queens, ambassadors… I say, ‘Terminate your own tariffs, drop your barriers.’” He declared April 2nd “the day America’s destiny was reclaimed” and promised, “This will indeed be the golden age of America.”

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2025 Federal Election

Three cheers for Poilievre’s alcohol tax cut

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By Franco Terrazzano

The Canadian Taxpayers Federation applauds Conservative Party Leader Pierre Poilievre’s commitment to end and reverse the alcohol escalator tax.

“Poilievre just promised major alcohol tax cuts and taxpayers will cheers to that,” said Franco Terrazzano, CTF Federal Director. “Poilievre’s tax cut will save Canadians money every time they have a cold one with a buddy or enjoy a glass of Pinot with their better half and it will give Canadians brewers, distillers and wineries a fighting chance against tariffs.”

Today, federal alcohol taxes increased by two per cent, costing taxpayers about $40 million this year, according to Beer Canada.

Poilievre announced a Conservative government “will axe the escalator tax on wine, beer and spirits back to 2017 levels, ending the automatic annual tax increases.”

The alcohol escalator tax has automatically increased excise taxes on beer, wine and spirits every year, without a vote in Parliament, since 2017. The alcohol escalator tax has cost taxpayers more than $900 million since being imposed, according to Beer Canada.

Taxes from multiple levels of government account for about half of the price of alcohol.

Meanwhile, tariffs are hitting the industry hard. Brewers have described the tariffs as “Armageddon for craft brewing.”

“Automatic tax hikes are undemocratic, uncompetitive and unaffordable and they need to stop,” Terrazzano said. “If politicians think Canadians aren’t paying enough tax, they should at least have the spine to vote on the tax increase.

“Poilievre is right to end the escalator tax and all party leaders should commit to making life more affordable for Canadian consumers and businesses by ending the undemocratic alcohol tax hikes.”

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