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The Fraser Institute: Prime Minister Trudeau’s redistribution economics doesn’t add up

Commentary
Canadian Prime Minister Justin Trudeau, centre, sits with Mary NG, right, Minister of International Trade, Export Promotion, Small Business; Economic Development and Chrystia Freeland, Canada's Deputy Prime Minister and Minister of Finance as they attend the NAFTA Advisory Council Meeting in Toronto, Thursday, March 16, 2023.

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 nearly a decade 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 percent.

Even excluding COVID-related spending, from 2018 to 2022, 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 care, daycare 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 percent. Yet among these same families, employment income only increased 8 percent 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 percent between 1995 and 2007, when employment income was growing much faster, to 10.3 percent 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 has 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 percent of middle-income families experienced an increase in their personal income taxes, as did 75 percent of families with children in the bottom 20 percent 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 our 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 fifth weakest in the industrialized world. 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, has 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.

Antony Anderson: William Howard Russell predicted the birth of the Canadian nation

Commentary
Toronto, Ontario; ca.1860's--Transportation -- Ontario, Simcoe and Huron Union Railroad Engine ""TORONTO'' No.2, first locomotive built in Toronto in 1853. (CP PHOTO) 1999 (National Archives of Canada) PA-138688

The Hub is pleased to present a regular column from author and historian Antony Anderson on the week that was in Canadian history.

The 1860s: Canada comes into its own

In the spring of 1861, the most renowned correspondent of the age, William Howard Russell, who had made his name at The Times pioneering an almost whole new form of front-line war journalism with his searing dispatches from the Crimean conflict, visited the United States just before the outbreak of its civil bloodbath. He also traveled through the United Province of Canada (established in 1841), the largest and most populous piece of British North America. His insights and anxieties are captured in his 1865 book, Canada; Its Defences, Condition, And Resources.

Then as now, it was a minor miracle that an international reporter would want to write about Canada, and in detail. A June 1863 article from The Times summed up the typical British attitude, “We listen with open ears to the faintest rumour of a cabal that threatens to cripple or depose one of [U.S. President Abraham] Lincoln’s Generals but who is Minister, if any, at Quebec or any other seat of British government in America, we none of us know. If we knew to-day we should forget tomorrow.” Russell’s interest was ignited by the dread of disorder spreading across the sprawling, translucent, and indefensible border.

Officially neutral, Great Britain did not recognize the breakaway southern confederacy of slave owners as a sovereign nation. However, there were swaths of British aristocracy and mill owners, dependent on southern cotton—harvested by slaves—who were sympathetic to the cause. British merchant ships broke through the North’s blockade of southern ports to keep trading in cotton and tobacco. British North America was already seen by many Americans as a puzzling anomaly, a pathetic monarchist rump, an enduring rebuke to the glorious American revolution, “always mentioned,” as Russell noted, “in such a tone of contempt.”

This contempt, amplified by a general ignorance of all things Canadian, was preyed upon and inflamed by “violent journals” and “intemperate politicians.” Perhaps unfairly, Russell judged, “The credulity of the American mind is beyond belief.” He heard so many official and unofficial voices clamouring for the republic to march north and “liberate” Canada that he came to fear “the great American people, with hands dyed in their brothers’ gore, and who, having sacrificed friendship, traditions, constitution, and liberty at home, will think but little of adding to the pyre of their angry passions the peace and happiness of others.” In this pandemic of war fever, Russell held out a sliver of hope: that was the moderate, silent majority he believed existed which would ultimately restrain their fellow Americans from going over the edge.

Russell ventured north of the border in January 1862 and found a Canada steeped in its own contempt for the raging republic. Foreshadowing Pierre Trudeau’s much-quoted line from 1969 likening Canada-U.S. relations to living next door to an elephant, Russell saw that Canadians were keenly aware that they were “much under the influence of the unruly fellow…There is no great love for him; but his prodigious kicks and blows, his threats, his bad language, his size and insolence, frighten them up here.” The relationship was as intertwined and complicated then as it is today.

As he rode the train into Hamilton, noticing the change in the accents around him, now hearing more Scotch and Irish, Russell noticed that Canadian passengers seemed to be reading mostly American newspapers. The same held true when he left Cornwall for Montreal, even for francophones, devouring American periodicals in English, which appeared to have been pirated. Russell was impressed by the political framework constructed by these British subjects, writing, “Canada has the most liberal institutions in the world— her municipal freedom is without parallel—education is widely disseminated—religious toleration restrains the violence of factions.”

He admired the fact that francophones who had taken to arms and rebelled in 1837 and 1838 now held loyal, responsible offices in service of the Crown. But his admiration for Canada was undercut by the fact that this country had done little to secure its own defence against the U.S. There had been much talk and many proposals but Russell could see Canadians were ultimately counting on the Mother Country, an ocean away, to defend them. “There is no sign as yet that the Canadians will quite arouse from a sleep which no fears disturb, although they hear the noise of robbers. They will not prepare for war, because they wish for peace, and it is plain enough that if war should come instead of peace, England would be too late to save them, because she would be too far,” he explained.

He conceded that Great Britain did “undoubtedly owe something to Canada, from the bare fact that for many years she resisted temptation, and remained under our flag unmoved by the blandishments and threats of the United States.” But Russell insisted that Canada and the other British semi-colonies (Nova Scotia, New Brunswick, P.E.I., Newfoundland) needed to build up and pay for their militias and volunteer units.

In the interim, Russell espoused a parallel response to potential invasion, one that had been circulating at least since the 1830s when London pondered how to keep the peace after the rebellions: a formal union of all British North America. “It is surprising that it should have floated about so long, and have stirred men to action so feebly. I think it is the first notion that occurs to a stranger visiting Canada and casting about for a something to put in place of the strength which distant England cannot, and Canadians will not, afford…The time has come now in the white heat of American strife for the adoption of the process.”

The obstacles were many and formidable. The British subjects scattered from the Atlantic to the Pacific did not know or trade very much with each other. They were divided by language, religion and geography. Russell conceded these peoples shared “no bond of connection, except a common obedience to the Queen”, and that was stretching it. Still, he argued, “On the whole some such scheme appears to be the only practical mode of saving the British Provinces from the aggression of the North American Republicans.” Needless to say, the Indigenous nations were deemed irrelevant in this whole matter.

Perhaps he felt the dismay of a journalist racing to capture history on the run, but by the time Russell was preparing to see his book printed, politicians across British North America had launched the drive for Confederation at conferences in Charlottetown and Quebec City. Delighted by Westminster’s support for the peaceful Canadian evolution to self-government, Russell looked into the future and nailed it:

Generosity not inconsistent with justice may yet lay the foundations of an enduring alliance…A powerful State may arise whose greatest citizens shall be proud to receive such honours as the Monarch of England can bestow, whose people shall vie with us in the friendly contests of commerce, and stand side by side with us in battle. And when the inevitable hour of separation comes, the parting will not then be in anger.