A person pumps gas at a gas station in Ottawa, on Monday, April 20.Keito Newman/The Globe and Mail
Thirteen months into the gig, Prime Minister Mark Carney’s political honeymoon is still going strong. No surprise, really: When Canadians compare him to his unmourned predecessor, his potential replacement on the other side of the aisle, or that unhinged huckster in the White House, it puts them in mind to extend him the benefit of the doubt, and then some.
Our country is beset by a series of challenges that can only be addressed by a leader with the ability to see things as they are, face them squarely and take action. There’s a widespread hope that Mr. Carney is l’homme de la situation.
The PM’s great strength has been his ability to name our fears, while laying out plausible answers for them.
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Economy threatened by U.S. trade barriers? Increase trade with other countries, and dismantle barriers at home. Growth sapped by a decade of anemic business investment? Take steps to entice $1-trillion of new investment.
Immigration system out of control? Promise to get it back under control. Is Canada, alone among major energy producers, unable to export more oil and gas overseas because of regulatory roadblocks? Promise to remove them.
And are Canadian governments spending too much on current benefits while investing too little in the foundations of future economic growth? Mr. Carney’s answer is that under him, Ottawa will spend less so that it can afford to invest more.
Spending less while investing more is fiscally necessary, economically logical – and politically challenging. That’s why, of all of Mr. Carney’s plans, it’s the one he will have the most trouble fulfilling. He’s already having trouble.
Next to defence spending, the most expensive single item in last fall’s budget was the so-called middle-class tax cut. The move to reduce the bottom income tax bracket from 15 to 14 per cent will cost $27.2-billion over five years. It’s politically popular – 22 million Canadians will get a smaller income tax bill – but it’s also a classic case of favouring current consumption over future investment.
Those $27.2-billion in lower taxes will be financed by $27.2-billion in additional deficit spending. It’s all borrowed money. Borrowed from the future, not invested in the future.
The Carney government has also brought in a number of similar small initiatives, such as lowering tolls on the Confederation Bridge between Prince Edward Island and New Brunswick, and slashing fares by 50 per cent on ferries in Atlantic Canada. These are surely popular, and they may even be good ideas, but there’s no talk of trade-offs. Ottawa is not paying for more ferry subsidies by lowering spending here or raising taxes there. It’s simply spending more borrowed money.
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Last month, Ottawa partnered with Ontario to lower municipal development charges, with the initiative expected to be extended to other provinces. Reforming the tax system to reduce taxes on building makes sense. But billions of dollars in foregone future municipal tax receipts are not being replaced by higher taxes somewhere else. Ottawa appears to be simply borrowing more, to subsidize municipalities into taxing less.
And last week, in its first fiscal act as a majority government, Team Carney announced the suspension of the federal fuel excise tax until Labour Day, knocking 10 cents off each litre of gasoline, and 4 cents off diesel.
“It is estimated this will provide over $2.4 billion in total tax relief,” said the government press release. What it did not say was that every cent of the $2.4-billion will be added to the deficit – borrowing from tomorrow to pay for spending today.
A call to invest more in the future by spending less in the present is, so far, a story of simply spending more, now.
In his “forward guidance” video released on the weekend, Mr. Carney said “I promise you: I will never sugar-coat our challenges.” And then, at least on this point, he kind of did.
The PM is clearly familiar with these criticisms, and in the video he tried to address them.
“We are not going to fix all our problems tomorrow,” he said, and “the biggest payoffs will take time.” In the meantime, “we know that Canadians need a boost today and a bridge to tomorrow. That’s why, as we build a stronger economy, we’re focused on lowering costs for Canadians.”
It sounds like a plan to lose weight that, in acknowledgement of the difficulty in waiting for a payoff in a distant future, proposes to make the subject happy by immediately boosting caloric intake.
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I get why the More Ice Cream Than Ever Diet might be popular. But I have doubts as to whether it will work.
Ottawa is going to have to make a series of difficult fiscal choices – trade-offs where saying yes to necessary things will only be possible by saying no to some other things that are themselves desirable and popular. To govern is to choose.
These choices are hard to make at the start of a government, but if put off, they only get harder each day, as the calendar moves inexorably toward the next election.
If Mr. Carney does not take advantage of the grace he has been given to ask for sacrifices now, he will not be able to ask later.