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Federal government keeps violating self-imposed fiscal rules

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From the Fraser Institute

By Jake Fuss and Grady Munro

By continually violating its own fiscal anchor, the Trudeau government has rendered the rule meaningless and abandoned the discipline it’s meant to impose.

Last week, after tabling the Trudeau government’s fall fiscal update, which includes evermore spending and borrowing, Finance Minister Chrystia Freeland called it a “responsible fiscal plan.” Upon closer scrutiny, however, the finance minister has once again abandoned her self-imposed fiscal rules and continues to spend, borrow and tax at unsustainable levels.

Fiscal rules, also known as “fiscal anchors,” help guide policy on government spending, taxes and borrowing. They’re supposed to prevent a deterioration in government finances, with an eye on ensuring debt is sustainable for future generations.

After taking office in 2015, the Trudeau government announced its fiscal anchor—balance the budget by fiscal year 2019-20. When the government quickly realized it would not achieve this goal, it dropped a new fiscal anchor—reduce Canada’s debt-to-GDP ratio, a common measure of a country’s ability to pay back its debt. However, the 2019 fall fiscal update revealed the government had violated its new fiscal anchor before the pandemic, as debt-to-GDP ticked up slightly from 30.8 to 31.0 per cent. In other words, federal debt grew slightly faster than the Canadian economy.

Then the government spent and borrowed hundreds of billions during COVID, driving debt-to-GDP up to 47.2 per cent in 2020-21. Afterwards, as the economy rebounded, the ratio levelled off and stabilized around 42 per cent in 2022-23.

Last week, Minister Freeland indicated the government will violate its own fiscal anchor at least two more times—debt-to-GDP will increase to 42.4 per cent in 2023-24 then climb higher in 2024-25. Again, federal debt is growing faster than the Canadian economy.

By continually violating its own fiscal anchor, the Trudeau government has rendered the rule meaningless and abandoned the discipline it’s meant to impose. There’s little direction for federal finances and almost nothing to ensure the government is disciplined with spending and debt growth. In such a scenario, politics—not responsible fiscal principles—governs decisions over the public purse.

So, what are the consequences to this wholly undisciplined approach to fiscal policy?

All else equal, a rising debt-to-GDP ratio means that debt interest costs will rise relative to the size of the economy. Spending on rising debt interest costs will divert money away from government programs and/or crowd out any fiscal room for tax relief for Canadian families.

And debt interest costs are rising rapidly. In 2020/21, when interest rates were at historic lows, the federal government spent $20.4 billion on debt interest. This year, interest costs will reach a projected $46.5 billion, more than double what they were three years ago. And will hit a projected $60.7 billion by 2028/29—double what the government plans to spend on employment insurance benefits that year.

Finally, according to last week’s fiscal update, debt-to-GDP will begin to decline after 2024/25, but this should be taken with a huge grain of salt since this government has consistently increased spending and debt beyond its original projections. And there’s nothing preventing the government from scrapping these commitments like they have with all their other fiscal anchors. Given the government’s clear preference for spending financed by borrowing, our debt-to-GDP ratio will likely continue to grow.

Unfortunately, there are few signs the Trudeau government will transform into a responsible steward of public finances and take meaningful steps to control debt and debt interest costs. And of course, Canadian taxpayers will pay the price.

Alberta

Federal taxes increasing for Albertans in 2025: Report

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From the Canadian Taxpayers Federation

By Kris Sims 

The Canadian Taxpayers Federation released its annual New Year’s Tax Changes report today to highlight major tax changes in 2025.

The key provincial tax change expected for Alberta is a reduction in the income tax rate.

“The Alberta government promised to reduce our lowest income tax bracket from 10 down to eight per cent and we expect the government to keep that promise in the new year,” said Kris Sims, CTF Alberta Director. “The United Conservatives said this provincial income tax cut would save families about $1,500 each and Alberta families need that kind of tax relief right now.

“Premier Danielle Smith promised to cut taxes and Albertans expect her to deliver.”

Albertans will see several federal tax hikes coming from Ottawa in 2025.

Payroll taxes: The federal government is raising the mandatory Canada Pension Plan and Employment Insurance contributions in 2025. These payroll tax increases will cost a worker up to an additional $403 next year.

Federal payroll taxes (CPP and EI tax) will cost a worker making $81,200 or more $5,507 in 2025. Their employer will also be forced to pay $5,938.

Carbon tax: The federal carbon tax is increasing to about 21 cents per litre of gasoline, 25 cents per litre of diesel and 18 cents per cubic metre of natural gas on April 1. The carbon tax will cost the average household between $133 and $477 in 2025-26, even after the rebates, according to the Parliamentary Budget Officer.

Alcohol taxes: Federal alcohol taxes will increase by two per cent on April 1. This alcohol tax hike will cost taxpayers $40.9 million in 2025-26, according to Beer Canada.

Following Budget 2024, the federal government also increased capital gains taxes and imposed a digital services tax and an online streaming tax.

Temporary Sales Tax Holiday: The federal government announced a two month sales tax holiday on certain items like pre-made groceries, children’s clothing, drinks and snacks. The holiday will last until Feb. 15, 2025, and could save taxpayers $2.7 billion.

“In 2025, the Trudeau government will yet again take more money out of Canadians’ pockets with payroll tax hikes and will make life more expensive by raising carbon taxes and alcohol taxes,” said Franco Terrazzano, CTF Federal Director. “Prime Minister Justin Trudeau should drop his plans to take more money out of Canadians’ pockets and deliver serious tax relief.”

You can find the CTF’s New Year’s Tax Changes report HERE.

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Business

The gun ban and buyback still isn’t worth it for taxpayers

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From the Canadian Taxpayers Federation

By Gage Haubrich

Even worse than the cost is the simple fact that the policy isn’t making Canadians safer. Trudeau banned the initial list of 1,500 guns in 2020, meaning that it’s illegal to buy, sell or use them. In every year since, violent gun crime in Canada has increased.

Right from the beginning, experts have told the prime minister that his gun ban and buyback will divert resources away from fighting crime rather than making Canada safer.

Instead of changing course, the Trudeau government announced it’s diverting even more taxpayers’ money to its failing gun policy policy.

And it’s an expensive diversion.

The federal government recently announced an additional 324 models of firearms are now prohibited and being added to the buyback list. That brings the total makes and models banned to almost 2,500.

Even though Ottawa hasn’t confiscated a single gun yet, costs have already begun to pile up for taxpayers. Since 2020, when the ban was first announced, the government has spent $67 million on the program. By the end of the fiscal year the government is likely to increase that number to about $100 million, according to government documents.

The projected costs of this scheme have been a problem from the start. In 2019, the government  said the buyback would cost taxpayers $200 million. But according to the Parliamentary Budget Officer, buying back the guns could cost up to $756 million, not including administrative costs. Other government documents show that the buyback is now likely to cost almost $2 billion.

Those costs do not include the newly banned firearms. And it looks like the government has plans to expand the list even further. That means even more costs to taxpayers.

Minister of Public Safety Dominic Leblanc, who is charge in charge of the gun ban, hinted during the press conference the popular SKS rifle might be added to the ban list next. There are estimated to be a million of those firearms in Canada.

That means the costs to taxpayers could soar and even more people could lose their guns. The  PBO report estimates that there were about 518,000 firearms banned on the original list. Adding the SKS could more than double the projected $756 million it would cost to confiscate the guns.

The government tried to ban the SKS before. It was included in an amendment to Bill C-21 that would have seen it banned along with a lot of hunting rifles. The Assembly of First Nations immediately passed an emergency resolution opposing this amendment at the time.

“It’s a tool,” said Kitigan Zibi Chief Dylan Whiteduck about the list of rifles that would have been banned. “It’s not a weapon.”

The government backed down on that amendment. There is no doubt it would encounter similar resistance from Indigenous hunters if Ottawa reimposed it.

Even worse than the cost is the simple fact that the policy isn’t making Canadians safer. Trudeau banned the initial list of 1,500 guns in 2020, meaning that it’s illegal to buy, sell or use them. In every year since, violent gun crime in Canada has increased.

And international examples confirm the pattern. New Zealand conducted a similar, but more extensive, gun ban and buyback in 2019. New Zealand had 1,216 violent firearm offenses in 2023. That’s 349 more offences than the year before the buyback.

All of this only confirms what experts have said from the beginning: This cost a lot of money, but won’t make Canada safer.

The union that represents the RCMP says the buyback “diverts extremely important personnel, resources, and funding away from addressing the more immediate and growing threat of criminal use of illegal firearms.”

“The gun ban is not working,” said the president of the Toronto Police Association. “We should focus on criminals.”

Academics who study the subject also agree.

“Buyback programs are largely ineffective at reducing gun violence, in large part because the people who participate in such programs are not likely to use those guns to commit violence,” said University of Toronto professor Jooyoung Lee.

Everyone but the prime minister can see the obvious. The costs for this program keep ballooning and taxpayers have every reason to worry the tab is only getting bigger. Yet our streets aren’t safer. Trudeau must scrap this ineffective and expensive gun buyback.

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