Following Israel’s April 18 limited strike on Isfahan, British Prime Minister Rishi Sunak asked that “calm heads” prevail and that all parties avoid “significant escalation.” Israel’s action is in fact the best way to avoid further escalation and restore the deterrence of Iranian attacks on Israel that prevents it.

The war in Gaza is as much about Iran’s regional ambitions as about the plight of the Palestinians. Tehran’s pursuit of regional hegemony in recent years, including its nuclear program, has stimulated closer relations between Israel and a growing number of Arab states with a shared interest in containing Iran. The 2020 Abraham Accords and subsequent discreet Arab-Israeli security cooperation recognized this. But two parties were threatened, Iran and the Palestinians, who lost the ability to hold regional settlements hostage to their demands. 

It was inevitable that Iran and its Palestinian proxy Hamas would try to provoke an Arab-Israeli clash to fracture the incipient coalition. The October 7 attacks, which would not have occurred without Iranian approval, were the result.

For years Israel and Iran have conducted a shadow war in which each would strike at the other through proxies, in third countries, or using means, such as cyberattacks, providing some deniability. That pattern held in the early months of the current conflict. Iran’s proxies, Hezbollah in Lebanon and Yemen’s Houthis, conducted attacks on shipping in the Red Sea and the Gulf of Aden and daily rocket strikes on Northern Israel. Israel struck Hezbollah targets in Lebanon and Iranian supply lines in Syria, and, on April 1, at architects of October 7 who were in the Iranian consulate in Damascus. The last gave Tehran the pretext for a direct attack on Israel.

Mishandling of Israeli-U.S. relations on both sides had strengthened the temptation for Iran to escalate. Prime Minister Netanyahu had unwisely drawn attention to disagreements with Washington which more deft diplomacy would have minimized, not least by cancelling and then restoring a planned visit by Israeli officials to Washington. President Biden’s repeated calls for Israeli “restraint” in Gaza, unwisely made in public, reinforced the impression of daylight between Israel and the U.S. 

That Israel foolishly struck Damascus without informing the U.S., despite the danger of subsequent retaliation against U.S. forces, and that the U.S. made this public, further magnified the apparent gap. 

Finally, Biden’s warnings to Tehran not to attack Israel pledged help in Israel’s defence but stopped short of threatening American cooperation in any retaliatory action. Tehran could now risk an attack on Israel without fear of U.S. reprisals.

Of course, Iran took steps to reduce the consequences of its attack. It was telegraphed in advance, enabling Israeli air defences, with assistance from traditional allies and discreet cooperation with Arab states, to down almost all Iranian drones and missiles with minimal damage to Israel. 

Attention was diverted from Gaza, where the unavoidable civilian casualties, cynically exploited by Hamas, had turned much international opinion against Israel. But Iran was now diplomatically isolated and the coalition against it was visibly stronger. Biden’s advice to Netanyahu to “take this win” and not retaliate and risk further escalation was not groundless.

There were grounds for seeing the Iranian attack as “symbolic” or “performative.” And Iran has engaged in “symbolic” retaliation before, responding to the 2020 U.S. assassination of an Iranian general with a retaliatory strike on U.S. forces that killed nobody. Many military actions are symbolic in the sense that they convey a political message to the enemy or to third parties. But part of the symbolism of Iran’s attack is that it set a precedent of direct attack on Israeli soil. 

Iran could have attacked from Lebanon with Hezbollah’s rockets, with shorter flight times, and against which air defences would have been less effective. But that would not have made the essential political point.

So far, Iran has enjoyed immunity from direct Israeli retaliation as long as it refrained from direct attack itself. Extending that immunity from retaliation to direct attack below a certain threshold, would in itself be a substantial escalation. Tehran’s public statements after the attack that it saw the matter as “concluded” were also intended to discourage Israeli retaliation and generate international opposition to it. 

Unwisely public, pressure on Israel from its allies and others to do nothing could only encourage Tehran to think that calibrated attacks could continue, with international pressure preventing Israeli reprisals. Successful pressure along these lines would not be unprecedented. During the Gulf War, President George H.W. Bush persuaded Israel not to retaliate against Iraqi Scud attacks lest this fracture the coalition for repelling Saddam Hussein’s invasion of Kuwait. 

But it is unclear whether Iran would necessarily calculate correctly. The success of air defences on April 13 was unprecedented, and even a marginal reduction in their effectiveness would have entailed substantial loss of Israeli lives. Accepting the possibility of a repetition that might be more destructive was inevitably unacceptable to Israel.

So, Israeli retaliation was not just permissible but necessary. That the attack on Isfahan was limited mattered, with Tehran given little provocation to respond. Moreover, limited retaliation avoided playing into Tehran’s hands by creating tensions within the anti-Iran coalition, a coalition of increasing significance to Israeli security. But Israel’s restoration of deterrence against direct Iranian attack actually limits the current conflict. Iran’s pursuit of regional hegemony and its proximity to a useable nuclear capability means that a military reckoning with Tehran may be inevitable. But Israel has probably managed to defer that to a more propitious moment.

In The Weekly Wrap Sean Speer, our editor-at-large, analyses for Hub subscribers the big stories shaping politics, policy, and the economy in the week that was.

What’s behind the capital gains tax increase?

Although the prime minister had already announced most of its signature measures over the previous week or so, this week’s budget still contained one notable surprise: an increase to the capital gains tax rate for capital gains above $250,000 for individuals and at any level for corporations and trusts. 

We had anticipated the budget would set out tax increases for corporations and high-income earners—in fact, the March 9 edition of the Weekly Wrap warned that the budget might “appeal to class warfare”—but we didn’t expect changes to the capital gains tax regime. The disincentives for entrepreneurship and investment seemed too high in the face of a stagnant economy, low business investment, and declining productivity. 

The budget proposal, which is projected to raise nearly $20 billion in new revenues over the next five years, has generated significant criticism from entrepreneurs and investors who rightly warn that it will discourage business start-ups and capital investment. Calgary-based investor Derrick Hunter has written about these risks for The Hub. 

At a time when the Canadian economy is in high demand of capital to expand the housing supply, increase business starts, and boost productivity, this is a counter-productive policy. There’s a considerable body of research that shows that capital taxes are among the most economically damaging forms of taxation. The economic costs of extracting this capital from investors and handing it over to the federal government are therefore likely to be significant. Especially since it wasn’t offset by accompanying tax reductions as Hub contributor Trevor Tombe set out in his post-budget analysis. 

It prompts the question: why is the Trudeau government doing this? 

We know for instance from former Finance Minister Bill Morneau that it’s been something the government had considered and rejected in the past. It strikes me that there are three explanations for adopting it now. 

• Politics: The government hopes to bait Pierre Poilievre and the Conservatives and/or parts of the business community into a fight in which the prime minister can reposition himself as on the side of middle-class Canadians. His gratuitous use of the “ultra-wealthy” in recent days to describe those affected by the policy change is a sign that the government is in search of a wedge issue. 

• Fiscal anchor: Between the 2023 budget and Fall Economic Statement, the government committed to lowering the debt-to-GDP ratio on a year-over-year basis, and without the new revenues from the tax change (particularly the windfall in the current fiscal year) it’s quite likely it would have once again broken free from its anchor. This would have not only set up the government for political criticism, but it may also have increased the likelihood that it faces a credit downgrade for its lack of fiscal credibility.  

• Ideology: The most underrated explanation is that the Liberal Party itself has evolved from a centrist party with corporate sensibilities to a much more progressive party that’s skeptical of capital and more predisposed to income redistribution and an activist state. This point cannot be overstated: it’s notable for instance that the budget change reverses a cut to the capital gains tax rate enacted by the Chrétien government in 2000. 

Whatever the ultimate balance of factors behind the government’s decision, the economic effects are still the same: hiking taxes on capital is bound to worsen Canada’s investment climate and ultimately its economy as a whole. 

Generational fairness requires prioritizing growth

The Trudeau government has sought to define this week’s budget in terms of “generational fairness.” It spoke for instance of the need to “restore a fair chance for Millenials and Gen Z.” Finance Minister Chrystia Freeland’s budget speech even claimed that we find ourselves at a “pivotal moment” for these cohorts. 

This political positioning is understandable yet insufficient. There’s plenty of evidence that younger Canadians are feeling anxious and agitated about their circumstances. They cannot afford homes. They’re delaying marriage and family formation. And, as we outlined this week in The Hub’s first bi-weekly DeepDive, they’re increasingly unhappy. 

The numbers are striking. Younger Canadians used to report higher levels of happiness than older Canadians. Not anymore. Canadians under age 30 are now on average less happy. Canada’s overall level of satisfaction ranked number 15 in this year’s World Happiness Report. But if you limit it to younger Canadians, we actually fall to number 58 along with countries like Paraguay, Malaysia, and China. 

There’s a tendency to observe these dynamics through the lens of politics. A key reason that the budget is so focused on this cohort is because it has abandoned the Liberal Party en masse. The Conservative Party of Canada is the only centre-right party in the Anglo-American world that currently has a political advantage among younger voters. These developments challenge long-standing political axioms about the interaction between demographics and political preferences.

But the biggest issue here isn’t politics. There’s something far more concerning about the demographic, socio-economic and even psychological effects of large numbers of young Canadians experiencing  “failure to launch” syndrome. It can have long-run costs and consequences for individuals and society as a whole.  

It’s not a coincidence for instance that the fertility rate is at an all-time low at the same time that Canadians under age 30 are reporting rising levels of unhappiness. Causality is doubtless working in both directions.  

An unmarried, childless future in an ugly and overpriced, small downtown apartment is a rather grim proposition. Nothing in the totality of human experience tells us that these are the conditions for human flourishing or a successful society. 

Some of the budget measures may help on the margins. But one does get the sense that there’s something bigger going on here and technocratic solutions are a necessary yet insufficient response. Howard Anglin’s article for The Hub this weekend about building aesthetics, textured neighbourhoods, and what Tim Carney calls “family-friendly” communities starts to get closer to some of the underlying factors behind this generational malaise. One could also point to the void of spiritual questions—though that’s beyond the scope of public policy and certainly this essay. 

I would however make the case for a lack of growth and progress as a key (and perhaps the key) explanatory factor. Here I may respectfully part company with Anglin. I don’t think that people are telling us that things are moving too fast. I think in a lot of ways they’re telling us that they’re moving too slow. I subscribe to the Douthian argument that economic and technological stagnation (outside of narrow cones of progress), cultural conformity and replication, and the absence of a common project have contributed to a self-reinforcing mix of stagnancy, sterility, and drift. 

Douthat’s solution to what he calls “decadence” is a combination of divine intervention and renewed technological progress (“So down on our knees—and start working on that wrap drive.”). 

Maybe he’s right. But either way, these are the precise questions that we ought to be asking before we consign a generation or two of young Canadians to an uninspiring and unfulfilling future. 

This might finally be the Maple Leafs’ year

Today marks something far more important than politics or public policy: it’s the start of the NHL playoffs and the Toronto Maple Leafs’ elusive search for their first Stanley Cup since 1967.

George Will likes to say that he writes about politics to support his baseball habit. I can relate. The only job that I can envision leaving The Hub for is really any role with the Maple Leafs, from team president to the guy who fills the water bottles.

I’ve loved hockey ever since I can remember. I played a lot as a young person—though not particularly well. I recently wrote about my playing days, including the occasional fight, for Cardus’ Comment Magazine. You can find my essay here.

Will also often says that at an age too young to make life-shaping decisions, he had to choose between becoming a Chicago Cubs fan or a St. Louis Cardinals fan. Most of his friends became Cardinals fans and grew up cheerful and liberal. He chose the Cubs and grew up a gloomy conservative.

Again, I can relate. Being a Leafs fan is good training for a conservative. It’s a steadfast lesson in low expectations and the inherent fallibility of man.

But I’m a North American conservative so I’m susceptible, however wrongheaded, to a unique continental optimism. I can’t help but succumb against my better judgment to a quixotic hopefulness.

No matter how hard one tries, the Leafs invariably tempt you into believing that this year is different. Last year’s first-round win against the Tampa Bay Lightning set off those feelings for me. The swift second-round defeat to the Florida Panthers caused a precipitous fall back to reality.

This season I’ve once again watched most of the games. I began the year determined to protect myself from inevitable disappointment. But somewhere along the way, perhaps due to Auston Matthews’ 69 goals or the group-think of my hockey chat groups (yes, there are two), I’ve come, at an almost sub-conscious level, to believe that this might be the year.

If so, I’ll need to bring my boys to Toronto for the parade because even though they’re only one and three years old, there’s a good chance that it won’t happen again in their lifetimes.

I suppose this is a long way of saying that if I’m a bit distracted in the coming days (and hopefully weeks) it’s because I’m focused on my real passion: hockey. Hopefully, politics and policy will cooperate and take a break for a while.

Until then, Maple Leafs forever!