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Federal government’s redistribution economics doesn’t work

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From the Fraser Institute

By Jason Clemens, Jake Fuss, and Milagros Palacios

Prime Minister Trudeau’s vision for a more prosperous Canada relies on a much larger role for the federal government, with more spending, regulation, borrowing and higher taxes. By moving existing money around—both from higher-income workers to average Canadians and from the future to the present through borrowing—he believes the Canadian economy will be stronger and living standards will rise. But after nine years of governing, the evidence is clear—the prime minister’s redistribution economics doesn’t work and has actually reduced living standards in Canada.

Let’s first understand the magnitude of the changes made by the Trudeau government. Federal spending (excluding interest costs on debt) has risen from $256.2 billion in the last year of the Harper government to an estimated $483.6 billion this year, an increase of 88.7 per cent.

Even excluding COVID-related spending, the Trudeau government has recorded the five highest years of federal spending (on a per-person basis, after adjusting for inflation) in the history of the country, far surpassing spending during both world wars and the Great Recession.

Under Trudeau, the federal government has introduced several new programs (including dental caredaycare  and pharmacare), and expanded several existing programs such as the cash transfer to families with children under 18 and corporate welfare.

Redistributing existing income has been a clear policy goal of the Trudeau government. From 2015 to 2022, average government transfers to families with children have increased from $12,685 to $15,750 (inflation-adjusted), an increase of 24.2 per cent. Yet among these same families, employment income only increased 8.0 per cent during the same period, meaning government transfers grew more than three times faster than their employment income. And as a share of household income, government transfers have increased from an average of 8.0 per cent between 1995 and 2007, when employment income was growing much faster, to 10.3 per cent in 2022.

The Trudeau government has financed this explosion in federal spending by borrowing, which is simply taxation deferred to the future, and tax increases.

Specifically, the government increased personal income taxes on professionals, entrepreneurs and successful business owners. It also increased taxes on businesses, which is an indirect and less transparent way of increasing taxes on average people since businesses don’t actually pay taxes, only people pay taxes. Higher business taxes mean less investment and thus lower wage growth for workers, lower payments to the business owners, and/or higher prices for consumers buying goods and services.

The Trudeau government also opaquely increased taxes on average Canadians. While it lowered the second personal income tax rate, it simultaneously eliminated several tax credits. As a result, 86 per cent of middle-income families experienced an increase in their personal income taxes as did 75 per cent of families with children in the bottom 20 per cent of income-earners.

But again, the government financed much of its new spending by borrowing, which means future tax increases. Consider that total federal debt stood at a little over $1.0 trillion when the Trudeau government took office in late-2015. By the government’s own estimates, total federal debt will reach almost $2.1 trillion next year.

Higher debt means higher interest costs, which divert money away from programs such as health care or badly needed tax relief. From 2015-16 (when Trudeau was first elected) to this year, federal debt interest costs have increased from  $21.8 billion to an expected $54.1 billion. For context, this year the federal government expects to raise $54.1 billion from the GST, which means that every cent raised from the national sales tax will go to pay interest costs on the federal debt.

By focusing on moving around existing income (i.e. redistribution) rather than promoting income growth through investment and entrepreneurship, the Trudeau government has helped produce an outright economic growth crisis. Canada’s current decline in per-person GDP, a broad measure of living standards, is one of the longest and deepest declines of the last 40 years. Moreover, as of the end of 2023, the latest year of available data, the decline in living standards had not stopped so there’s a chance this could be the worst fall in living standards since at least the early-1980s.

According to a 2023 study, growth in per-person GDP from 2013 to 2022 was at its lowest rate since the Great Depression. Indeed, Canada’s post-COVID recovery was the 5th-weakest in the industrialized world. And prospects for the future are no better. A recent study by the OECD estimated that Canada would have the slowest growth in living standards among 32 high-income countries for the foreseeable future.

Simply put, the Trudeau government’s policies, which focused on government-led prosperity and moving income around instead of growing incomes, have led to a decline in living standards and economic malaise. Canadians are struggling when we should be leading the world in growth and prosperity. The only way to reverse our economic decline is to embrace a markedly different approach to policy focused on economic growth through entrepreneurship, investment and innovation.

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Automotive

US EV Industry Shifts Back Into Reality Gear

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From the Daily Caller News Foundation

By DAVID BLACKMON

 

At the start of each year, I write a piece in which I make a set of predictions about what will happen in the energy space during the coming 12 months. One prediction I made in this year’s story focused on the likelihood of a big fallout in America’s EV manufacturing industry.

Citing Fisker and Rivian as examples, I questioned whether any of the pure-play electric vehicle companies based in the United States had the ability to compete with Tesla in that market.

I took some heat from viewers that same week after I predicted on a podcast that every one of the U.S. pure-play EV makers besides Tesla would be either in bankruptcy or teetering on the brink by the end of 2024. As things are turning out, my only regret there is that I did not predict they would all be in that state by the middle of 2024 instead of the end of the year.

This week, Fisker filed for bankruptcy, becoming the latest in a series of casualties in the growing falling-out in the EV sector. As The New York Times noted in its story on the matter, Fisker was one of a number of pure-play EV makers who were able to raise billions in startup funds from investors who got caught up in the EV frenzy during 2020 and 2021.

Several of those firms, like ProterraArrival, and Lordstown Motors already preceded Fisker down the bankruptcy path. Others, like Rivian, are right on the verge of taking the same plunge.

Lucid makes just one model, a luxury sedan, and is struggling to find buyers. It boasted about setting a new delivery “record” in the first quarter of this year, but a closer search reveals that was for only 1,967 units. The carmaker followed that announcement with another in May that it would lay off 400 employees in an apparent effort to conserve cash.

Oof.

EV truck maker Nikola, meanwhile, saw its stock price hit a record low this week amid ongoing softening in the US EV market. At the close of June 20 trading, Nikola’s price had dropped to just 33 cents per share. The stock collapse comes months after the company had delivered its first hydrogen fuel cell heavy truck during Q1, but that amounted to sales of just 42 units.

These and other pure-play EV makers are not in any way serious competition for Tesla.

Note also that Tesla is having major struggles of its own as the pace of EV adoption growth slows to a snail’s pace. The company laid off 10% of its workforce in May amid the ongoing slowing of the EV market. Tesla’s rollout of its radically designed Cybertruck has been plagued by recalls, technical issues and customer complaints, and the company’s overall Q1 2024 sales numbers fell dramatically from both Q4’s numbers and year-over-year.

But its decade-long head start on the competition, vertical integration of supply chains and diversification into other ventures give Tesla advantages these other pure-play EV companies do not and cannot enjoy. It remains uniquely situated among its peer group to survive the market contraction.

Traditional automakers like Ford and GM have been able to placate investors about their stunning losses in EV ventures (Ford somehow managed to lose $132,000 per unit sold in Q1 2024) by offsetting them against major profits from their traditional gas and diesel-powered car divisions. But even those companies have invoked an array of strategic shifts over the past six months in which they have delayed or cancelled planned new investments in their EV dreams.

What we are seeing here is a rapid shifting back to reality in the US auto industry. EVs always have been, are today, and will remain a niche product that can fill specific needs for a limited segment of our population, mainly the wealthy. The reason why the traditional, gas-and-diesel-powered auto segments at companies like Ford and GM remain wildly profitable is because that is where the real auto market remains.

No amount of Soviet-style central planning, industrial policy and command-and-control edicts and regulations coming down from Washington, D.C., are going to change that reality.

David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

Featured image screenshot: (Screen Capture/PBS NewsHour)

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Automotive

Government subsidies cost more than EV capital investments

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From the Canadian Taxpayers Federation

Author: Franco Terrazzano

The Canadian Taxpayers Federation is calling for an end to corporate welfare following today’s Parliamentary Budget Officer report showing government subsidies are 14 per cent more than the capital investments corporations are making in the electric-vehicle supply chain.

“Putting taxpayers on the hook for more money than these corporations are spending to build their own factories is an awful deal for ordinary Canadians,” said Franco Terrazzano, CTF Federal Director. “Taxpayers are being taken to the cleaners with this EV corporate welfare.”

The PBO released a report regarding recent government subsidies for EV factories.

“For the $46.1 billion in investments (capital expenses) across the EV supply chain, PBO estimates total corresponding government support (for capital and operating expenses) to be up to $52.5 billion, which is $6.3 billion (14 per cent) higher than announced investments,” according to the PBO report.

Of the $52.5 billion in taxpayer subsidies, the PBO estimates $31.4 billion is coming from the federal government and $21.1 billion is coming from provincial governments.

“These lopsided numbers show that these corporate handouts are nothing more than a vanity project for politicians,” said Jay Goldberg, CTF Ontario Director. “If these politicians want to grow the economy, they should cut taxes and red tape rather than make bad bets with taxpayers’ money.”

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