From the Fraser Institute

By Jason Clemens and Jake Fuss

There’s been more talk this year than normal about the need for governments, particularly Ottawa, to “stay in their own lane.” But what does this actually mean when it comes to the practical taxing, spending and regulating done by provincial and federal governments?

The rules of the road, so to speak, are laid out in sections 91 and 92 of the Canadian Constitution. As noted economist Jack Mintz recently explained, the federal government was allocated responsibility for areas of national priority such as defence and foreign relations, criminal law, and national industries such as transportation, communication and financial institutions. The provinces, on the other hand, were allotted responsibilities deemed to be closer to the people such as health care, education, social services and municipalities.

Simply put, the principle of staying in one’s lane means the federal and provincial governments respect one another’s areas of responsibility and work collaboratively when there are joint interests and/or overlapping responsibilities such as environmental issues.

The experience of the mid-1990s through to roughly 2015 shows the tangible benefits of having each level of government focus on their areas of responsibility. Recall that the Liberal Chrétien government fundamentally removed itself from several areas of provincial jurisdiction, particularly welfare and social services, in its historic 1995 budget.

But the election of the Trudeau government in 2015 represented a marked change in approach. The tax and spending policies of the Trudeau government, which broke a 20-year consensus, favoured ever-increasing spending, higher taxes and much higher levels of borrowing. Federal spending (excluding interest payments on debt) has increased from $273.6 billion in 2015-16 when Trudeau first took office to an expected $483.6 billion this year, an increase of 76.7 per cent.

Federal taxes on most Canadians, including the middle class, have also increased despite the Trudeau government promising lower taxes. And despite the tax increases, borrowing has also increased. Consequently, the national debt has ballooned from $1.1 trillion when Trudeau took office to an estimated $2.1 trillion this year.

Despite these massive spending increases, there are serious questions about core areas of federal responsibility. Consider, for example, the major problems with Canada’s defence spending.

Canada has been called out by both NATO officials and our counterparts within NATO for failing to meet our commitments. As a NATO country, Canada is committed to spend 2 per cent of the value of our economy (GDP) annually on defence. The latest estimate is that Canada will spend 1.4 per cent of GDP on defence and we’re the only country without a plan to reach the target by 2030. The Parliamentary Budget Officer recently estimated that to reach our NATO commitment, defence spending would have to increase by $21.3 billion in 2029-30, which given the state of federal finances would entail much higher borrowing and/or higher taxes.

So, while the Trudeau government has increased federal spending markedly, it has not spent those funds on core areas of federal responsibility. Instead, Trudeau’s Ottawa has increasingly involved itself in provincial areas of responsibility. Consider three new national initiatives that are all squarely provincial areas of responsibility: pharmacare, $10-a-day daycare and dental care.

And the amounts involved in these programs are not incidental. In Budget 2021, the Trudeau government announced $27.2 billion over five years for the new $10-a-day daycare initiative, Budget 2023 committed $13.0 billion for the dental benefit over five years, and Budget 2024 included a first step towards national pharmacare with spending of $1.5 billion over five years to cover most contraceptives and some diabetes medications.

So, while the Trudeau government has deprioritized core areas of federal responsibility such as defence, it has increasingly intruded on areas of provincial responsibility.

Canada works best when provincial and federal governments recognize and adhere to their roles within Confederation as was more the norm for more than two decades. The Trudeau government’s intrusion into provincial jurisdiction has increased tensions with the provinces, likely created unsustainable new programs that will ultimately put enormous financial pressure on the provinces, and led to a less well-functioning federal government. Staying in one’s lane makes sense for both driving and political governance.

From the Fraser Institute

By Kenneth P. Green

Asian countries such as China and Japan were not particular threats to prior automotive markets because North America’s massive and diverse internal combustion vehicle markets were capable of relatively lower-cost production of superior quality vehicles. That’s not shaping up to be the case for EVs, which are vastly more expensive coming off North American assembly lines than in China and other Asian countries.

Seemingly every week, Canada’s electric vehicle (EV) transition policy framework grows more incoherent. The goal of Canada’s EV policy is to ensure all new light-duty vehicle sales in Canada are zero-emission vehicles (ZEVs), with a strong emphasis on battery-electric vehicles, by 2035.

The latest incoherence is Prime Minister Trudeau’s announcement of 100 per cent tariffs on Chinese EV imports and 25 per cent tariffs on Chinese steel and aluminum imports (the Canada needs to build EVs). This will directly undercut the government’s EV transition targets by denying Canadians access to affordable electric cars.

The stated rationale for the tariffs is, according to Finance Minister Chrystia Freeland, that the “Chinese are trying to corner the North American EV market by dumping subsidized vehicles into it” and that “China has an intentional, state-directed policy of overcapacity and oversupply designed to cripple our own industry” so “we simply will not allow that to happen to our EV sector.” And arguably, some of that is probably reasonable.

Tariffs are generally understood as protectionist mechanisms, designed to shield domestic industries from lower-cost foreign competition by making imported goods more expensive. Additionally, they can serve as punitive measures to penalize countries for hostile economic or political actions. By limiting access to one’s markets, tariffs can reduce the profits of the targeted country, thereby pressuring it to alter behaviours or policies. When imposed against countries intentionally sabotaging markets, tariffs may be considered a legitimate response.

But tariffs on China will also hurt Canadians by keeping lower-cost goods out of our market, leaving them with only higher-priced goods and services provided by protected domestic industries that need not fear price competition and thus feel little pressure to lower the prices for their goods and services.

And this is part of the incoherence of the new Trudeau tariff policy. The Trudeau EV mandates are set to create, in essence, a monopoly on the types of automotive technologies (again, EVs) allowed to be used in Canada, which other countries can manufacture more cheaply than domestic manufacturers. Asian countries such as China and Japan were not particular threats to prior automotive markets because North America’s massive and diverse internal combustion vehicle markets were capable of relatively lower-cost production of superior quality vehicles. That’s not shaping up to be the case for EVs, which are vastly more expensive coming off North American assembly lines than in China and other Asian countries.

By driving up the costs of buying EVs in Canada, the Trudeau government will directly undercut its EVs-by-2035 mandate. If people can’t afford EVs, as most currently cannot, the EV mandate targets are doomed. People will simply hold their old internal-combustion vehicles for longer. This trend is already observable in the United States where new vehicles have become more expensive. Americans are holding on to their vehicles longer than ever, with the average vehicle age reaching 13.6 years.

The Trudeau government’s highest priority has been the war on climate change, which various government leaders in Canada and around the world have proclaimed the greatest threat to people and the planet in human history. But if the government is sincere about this, then the priority should be to maximize Canadians’ access to cheaper EVs, and the prime minister should be largely indifferent to where Canadians choose to source those EVs. Indeed, he should urgently want low-cost EVs available to Canadians for there to be any hope of achieving his all-EV by 2035 goal.