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Economy

Taxpayer watchdog slams Trudeau gov’t for increasing debt ceiling: ‘Put down the credit card’

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5 minute read

From LifeSiteNews

By Anthony Murdoch

Canadian Finance Minister Chrystia Freeland authorized an additional $73 billion in borrowing this fiscal year.

After Canadian Finance Minister Chrystia Freeland gave herself and the government the authority to borrow an additional $73 billion this fiscal year, the head of the nation’s leading taxpayer watchdog group said the federal government needs to “put down the credit card” and return to common-sense spending.

Freeland, as per a February 15 cabinet order made under the Financial Administration Act, allowed the extra borrowing to take place.

The government has set “$517 billion to be the maximum aggregate principal amount of money that may be borrowed” before April 1. Before this cabinet order, however, the maximum amount was $444 billion.

Despite Freeland claiming that the increase in borrowing is “in no way a blank cheque,” Canadian Taxpayers Federation federal director Franco Terrazzano said the borrowing needs to end.

“The Trudeau government needs to put down the credit card and pick up some scissors,” Terrazzano told LifeSiteNews.

“The government should be cutting spending and balancing the budget, not racking up more debt for years to come.”

In 2021, Canada’s Parliament raised the federal debt borrowing amount by a whopping 56% under the Borrowing Authority Act. The amount went from $1.168 trillion to $1.831 trillion.

“What it does is set a ceiling for how much the government can spend,” Freeland said at the time.

Terrazzano told LifeSiteNews that the Trudeau government should be cutting spending and balancing the budget, not racking up more debt for years to come.

Terrazzano observed that in the coming year the Trudeau government will be spending “more money on debt interest charges than it sends to the provinces in health transfers.”

“In a handful of years, every penny collected from the GST (Goods and Service Tax) will go toward paying interest on the debt,” he noted.

Under Prime Minister Justin Trudeau, due to excessive COVID money printing, inflation has skyrocketed.

Last month, LifeSiteNews reported that fast-rising food costs in Canada have led to many people feeling a sense of “hopelessness and desperation” with nowhere to turn for help, according to the Canadian government’s own National Advisory Council on Poverty.

Last year, the Bank of Canada acknowledged that Trudeau’s federal “climate change” programs, which have been deemed “extreme” by some provincial leaders, are indeed helping to fuel inflation.

Terrazzano told LifeSiteNews that Trudeau should “completely scrap his carbon tax,” which is making everything more expensive.

Conservatives blast increased debt

Conservative Party of Canada (CPC) MPs have been critical of the raised debt ceiling. “You’re simply saying, ‘Give me a blank cheque and then trust me,’” MP Ed Fast said.

Freeland claimed that the “characterization of the borrowing authority limit as a blank cheque is simply false.”

CPC leader Pierre Poilievre recently asked, “Is there a dollar figure to which she would limit the debt?”

She replied that the government is “mindful that limits exist.”

During a February 13 Senate national finance committee meeting, Budget Officer Yves Giroux noted how Trudeau’s cabinet plans in terms of spending are not clear.

“We don’t know exactly what the government plans on spending or doing in terms of new spending or potential spending,” he said when asked by Senator Elizabeth Marshall if the new borrowing limits are “still realistic.”

Marshall added, “As it stands now, do you think it looks reasonable?”

“It looks sufficient, but the government always wants to give itself some room to maneuver in case there are unforeseen events that require borrowing on short notice,” Giroux replied.

A report from September 5, 2023, by Statistics Canada shows food prices are rising faster than headline inflation at a rate of between 10% and 18% per year.

According to a recent Statistics Canada survey of supermarket prices, Canadians are paying 12% more for carrots, 14% more for hamburger (ground meat), and 27% more for baby formula.

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Business

Canada’s economy has stagnated despite Ottawa’s spin

Published on

From the Fraser Institute

By Ben Eisen, Milagros Palacios and Lawrence Schembri

Canada’s inflation-adjusted per-person annual economic growth rate (0.7 per cent) is meaningfully worse than the G7 average (1.0 per cent) over this same period. The gap with the U.S. (1.2 per cent) is even larger. Only Italy performed worse than Canada.

Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of Canada’s economic performance. Journalists, politicians and analysts often compare various measures of Canada’s total GDP growth to other countries, or to Canada’s past performance, to assess the health of the economy and living standards. However, this statistic is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.

Federal Finance Minister Chrystia Freeland, for example, recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. Although the Trudeau government often uses international comparisons on aggregate GDP growth as evidence of economic success, it’s not the first to do so. In 2015, then-prime minister Stephen Harper said Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”

Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. In reality, aggregate GDP growth statistics are not driven by productivity improvements and do not reflect rising living standards. Instead, they’re primarily the result of differences in population and labour force growth. In other words, they aren’t primarily the result of Canadians becoming better at producing goods and services (i.e. productivity) and thus generating more income for their families. Instead, they primarily reflect the fact that there are simply more people working, which increases the total amount of goods and services produced but doesn’t necessarily translate into increased living standards.

Let’s look at the numbers. Canada’s annual average GDP growth (with no adjustment for population) from 2000 to 2023 was the second-highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good, until you make a simple adjustment for population changes by comparing GDP per person. Then a completely different story emerges.

Canada’s inflation-adjusted per-person annual economic growth rate (0.7 per cent) is meaningfully worse than the G7 average (1.0 per cent) over this same period. The gap with the U.S. (1.2 per cent) is even larger. Only Italy performed worse than Canada.

Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, growing at an annualized rate of 1.1 per cent—more than twice the annual population growth rate of the G7 as a whole at 0.5 per cent. In aggregate, Canada’s population increased by 29.8 per cent during this time period compared to just 11.5 per cent in the entire G7.

Clearly, aggregate GDP growth is a poor tool for international comparisons. It’s also not a good way to assess changes in Canada’s performance over time because Canada’s rate of population growth has not been constant. Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in population growth. This increase has effectively partially obscured historically weak economic growth per person over the same period.

Specifically, from 2015 to 2023, under the Trudeau government, inflation-adjusted per-person economic growth averaged just 0.3 per cent. For historical perspective, per-person economic growth was 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.

Due to Canada’s sharp increase in population growth in recent years, aggregate GDP growth is a misleading indicator for comparing economic growth performance across countries or time periods. Canada is not leading the G7, or doing well in historical terms, when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.

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Business

New capital gains hike won’t work as claimed but will harm the economy

Published on

From the Fraser Institute

By Alex Whalen and Jake Fuss

Capital taxes are among the most economically-damaging forms of taxation precisely because they reduce the incentive to innovate and invest.

Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.

Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50 per cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’ marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.

The problems with hiking capital gains taxes are numerous.

First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.

For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.

Second, the lock-in effect creates a drag on economic growth as it incentivises investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.

And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7 billion. Hiking taxes on capital will make both pressing issues worse.

Contrary to the government’s framing—that this move only affects the wealthy—lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically-damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital do raise revenue, the economic costs exceed the amount of tax collected.

Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new start-ups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgement of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.

At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.

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