Much more of the latter.
The Liberal government has unveiled their latest federal budget.
With many of the contents already leaked ahead of time, there was little suspense in the formal announcement.
The budget comes as Canada and our allies face a more dangerous and unstable world, with countries emerging from the pandemic in a weakened fiscal position.
Debt has surged, and so has inflation, meaning many people are falling further and further behind.
This is most certainly a serious moment, that requires serious decision making, eschewing ideology and instead responding to reality.
With that in mind, I owe it to you to provide an analysis of the budget that is unbiased as possible. Here’s what I think the Liberals got right, and what they got wrong with budget 2022.
I’ll start with the positive:
Military spending
Canada should have gone all the way to spending 2% of our GDP on defense, as we had committed to along with our NATO partners.
While the budget falls short of that, it moves in the right direction.
The Liberals pledged $8 billion in new defense spending, and are planning a review of Canada’s defense policy, a policy that is out-of-date given current events.
About a week or so before the budget, the Canadian government announced they would move forward with purchasing 88 F-35s. That purchase – currently billed at about $19 billion – is separate from the $8 billion in new defense spending.
If – as many expect – the government announces deepened co-operation with the United States on strengthening NORAD, then Canada will make real progress towards taking our national defense seriously.
However, pledges are one thing, tangible action is another.
The Liberals have in the past promised more defense spending, only for that money to remain unspent. Hopefully, events in Europe, and the fact that we share a northern border with an increasingly aggressive Russia, will give the Liberals the impetus they need to spend the money on improving our severely underfunded military.
What was announced in the budget isn’t enough, but – if spent – is a good step in the right direction.
The budget also pledges $1 billion in loans to Ukraine, and $500 million in military aid, which is the right thing to do as Ukraine fights for their freedom and sovereignty against Russia’s invasion.
In what is also largely a national security measure – though billed as economic – the government is planning to spend $3.8 billion on a ‘critical minerals strategy’ to increase our utilization of Canada’s massive – but largely untapped – supply. Given that many of our allies are dependent on China for key minerals (some of which are crucial to complex military hardware), increasing Canada’s production of those minerals is an important long-term move.
Foreign homebuyer restrictions
Canada has long been a destination of choice for wealthy non-Citizens to purchase property. This has played a role in driving up housing prices. Other nations facing similar issues – such as New Zealand – have responded with bans on foreign homebuyers.
Now, Canada is doing so as well.
For the next two years, the Liberals say foreign homebuyers will be banned from buying condos, apartments, and single residential units. That ban will not apply to permanent residents, students, or foreign workers. Additionally, if a foreigner is purchasing their primary residence in Canada, they will be exempt from the ban. Clearly, the effort is meant to target wealthy foreigners who have no plans to spend much time in Canada, but are using our real estate market to move their wealth out of whatever country they primarily reside in.
While this should have been done some time ago, it’s better that it happens now than not at all.
Looking at the budget, I believe the Liberals got it right – or at least moved in the right direction – on those two issues, military spending/national defense and the foreign homebuyer ban.
Now, here’s where I think they got it wrong:
A flawed foundation
To start with, the Liberals – and the NDP – remain trapped within an ideological box.
They desperately want to claim they are addressing the rising cost-of-living, but their own policies are making the problem worse. Yet, to reverse those policies would be to make a dramatic change in their overall approach, something they are unwilling to do.
For example, the more the federal government continues to borrow and spend, the more the Bank of Canada feels pressured to print more money, which weakens the value of our money and leads to more inflation.
Carbon taxes also drive up the cost-of-living, and Steven Guilbeault has admitted that efforts to lower gas taxes ‘go against’ the agenda of the Liberal government.
Thus, the federal budget has to make it look like the government is addressing rising prices, while not actually doing so.
Let’s consider the $750 million tax-free savings account the budget introduces for first-time homebuyers. The idea is to help people save money, and then withdraw it without paying taxes to put towards the down payment on their first home.
That sounds nice, but when you consider that the carbon tax causes higher prices throughout the entire economy, this is an example of the government taking your money away with one hand, and giving some back to you with another. Surely, simply getting rid of the carbon tax and limiting government spending would do far more to help people afford a home, since it would help to bring down inflation.
More spending to fix problems created by more spending
Further along those lines we see the government planning $1.5 billion in spending on extending the ‘rapid housing initiative,’ and another $1.5 billion for co-op housing.
Again, a key problem facing Canadians is there is so much printed money flowing around the system that each individual dollar buys less. Much of that money obviously goes towards fixed assets like housing, which unsurprisingly leads to higher prices. To think that a problem caused in large part by excessive spending and excessive money printing can by fixed by more spending is akin to thinking you can put out a fire by throwing some gasoline on it.
Leaving the carbon tax in place
As mentioned above, the best thing the Liberal government could have done to help Canadians with the affordability crisis would be to scrap the carbon tax.
The carbon tax is a deliberate inflationary policy, in that it is explicitly designed to make things more expensive.
After all, it is designed to go up year after year after year, so it represents baked-in inflation.
By leaving the carbon tax in place, and by continuing plans to increase it, the Liberal government lacks the credibility to claim they are really concerned with the rising cost of living.
Higher taxes
In what is an easy political move, the Liberals will be increasing taxes on large banks and insurance companies. They will impose a ‘one-time’ tax of 15% on taxable income above $1 billion earned in the 2021 tax year by large banks and large life insurers.
The government will also increase the corporate tax rate by 1.5% on taxable income above $100 million for large banks and large life insurers. This will be a permanent increase.
The Liberals also plan to ‘examine’ what they are calling a “new minimum tax regime” which they say will be about “ensuring wealthy Canadians pay their fair share.”
These are populist policies – but of course the media won’t use that term much in relation to the Liberals – and will be easy to promote politically.
The actual impact however will not help the country. Banks and life insurers will simply raise their fees and charge higher prices for their products, passing costs on to consumers who are already struggling. And, moves to increase taxes on wealthy Canadians will drive many people out of the country to lower tax jurisdictions. We have repeatedly seen that increasing taxes with the goal of “making the rich pay their fair share” often leads to lower overall tax revenue, since someone who leaves a country pays 0%.
More deficits, more debt
Finally, the budget continues leading Canada down the road of more budget deficits and more debt.
And this is the biggest problem with the budget.
While the Liberals got a few things right, their overall approach is so deeply flawed that this country will continue to be in a worsening position.
With prices surging all around us, the Liberals continue to double-down on a big-government, big-spending approach that not only fails to solve the problem of rising prices, but directly contributes to that problem.
They remain stuck in a mindset that has little trust in individual Canadians, and instead assume that only the central government can make anything happen.
Canada needed a big change of direction in the 2022 budget, but unfortunately for Canadians we got more of the same.
Spencer Fernando
Photo – YouTube
***
Unlike CBC and much of the establishment media who rely on taxpayer money, I rely upon voluntary contributions. If you value my perspective, you can show your support by making a contribution through PayPal, or directly through Stripe below.
[simpay id=”28904″]
