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Federal government’s ‘fudget budget’ relies on fanciful assumptions of productivity growth

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From the Fraser Institute

By Niels Veldhuis and Jake Fuss

Labour productivity isn’t growing, it’s declining. And stretching the analysis over the Trudeau government’s time in office (2015 to 2023, omitting 2020 due to COVID), labour productivity has declined by an average of 0.8 per cent. How can the Trudeau government, then, base the entirety of its budget plan on strong labour productivity growth?

As the federal budget swells to a staggering half a trillion dollars in annual spending—yes, you read that correctly, a whopping $538 billion this year or roughly $13,233 per Canadian—and stretches over 430 pages, it’s become a formidable task for the media to dissect and evaluate. While it’s easy to spot individual initiatives (e.g. the economically damaging capital gains tax increase) and offer commentary, the sheer scale and complexity of the budget make it hard to properly evaluate. Not surprisingly, most post-budget analysts missed a critically important assumption that underlies every number in the budget—the Liberals’ assumption of productivity growth.

Indeed, Canada is suffering a productivity growth crisis. “Canada has seen no productivity growth in recent years,” said Carolyn Rogers, senior deputy governor at the Bank of Canada, in a recent speech. “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”

The media widely covered this stark warning, which should have served as a wake-up call, urging the Trudeau government to take immediate action. At the very least, this budget’s ability—or more accurately, inability—to increase productivity growth should have been a core focus of every budget analysis.

Of course, the word “productivity” puts most people, except die-hard economists, to sleep. Or worse, prompts the “You just want us to work harder?” questions. As Rogers noted though, “Increasing productivity means finding ways for people to create more value during the time they’re at work. This is a goal to aim for, not something to fear. When a company increases productivity, that means more revenue, which allows the company to pay higher wages to its workers.”

Clearly, labour productivity growth remains critical to our standard of living and, for governments, ultimately determines the economic growth levels on which they base their revenue assumptions. With $538 billion in spending planned for this year, the Trudeau government better hope it gets its forecasts right. Otherwise, the $39.8 billion deficit they expect this year could be significantly higher.

And here’s the rub. Buried deep in its 430-page budget is the Trudeau government’s assumption about labour productivity growth (page 385, to be exact). You see, the Liberals assume the economy will grow at an average of 1.8 per cent over the next five years (2024-2028) and predict that half that growth will come from the increase in the supply of labour (i.e. population growth) and half will come from labour productivity growth.

However, as the Bank of Canada has noted, labour productivity growth has been non-existent in Canada. The Bank uses data from Statistics Canada to highlight the country’s productivity, and as StatsCan puts it, “On average, over 2023, labour productivity of Canadian businesses fell 1.8 per cent, a third consecutive annual decline.”

In other words, labour productivity isn’t growing, it’s declining. And stretching the analysis over the Trudeau government’s time in office (2015 to 2023, omitting 2020 due to COVID), labour productivity has declined by an average of 0.8 per cent. How can the Trudeau government, then, base the entirety of its budget plan on strong labour productivity growth? It’s what we call a “fudget budget”—make up the numbers to make it work.

The Trudeau fudget budget notwithstanding, how can we increase productivity growth in Canada?

According to the Bank of Canada, “When you compare Canada’s recent productivity record with that of other countries, what really sticks out is how much we lag on investment in machinery, equipment and, importantly, intellectual property.”

Put simply, to increase productivity we need businesses to increase investment. From 2014 to 2022, Canada’s inflation-adjusted business investment per worker (excluding residential construction) declined 18.5 per cent from $20,264 to $16,515. This is a concerning trend considering the vital role investment plays in improving economic output and living standards for Canadians.

But the budget actually hurts—not helps—Canada’s investment climate. By increasing taxes on capital gains, the government will deter investment in the country and encourage a greater outflow of capital. Moreover, the budget forecasts deficits for at least five years, which increases the likelihood of future tax hikes and creates more uncertainty for entrepreneurs, investors and businesses. Such an unpredictable business environment will make it harder to attract investment to Canada.

This year’s federal budget rests on fanciful assumptions about productivity growth while actively deterring the very investment Canada needs to increase living standards for Canadians. That’s a far cry from what any reasonable person would call a successful strategy.

Business

“We have a deal”: Trump, Xi strike breakthrough on trade and fentanyl

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President Trump declared “we have a deal” Thursday after meeting with Chinese President Xi Jinping in South Korea, describing their nearly two-hour summit as “a 12 out of 10.” Speaking aboard Air Force One, Trump told reporters the two leaders reached a sweeping agreement to stabilize trade relations and address the deadly fentanyl crisis. “We have a deal. Now, every year we will renegotiate the deal,” Trump said. “But I think the deal will go on for a long time.”

According to Trump, Xi agreed to suspend for one year China’s export restrictions on products made with rare-earth and critical minerals — materials essential to the production of semiconductors, batteries, and high-tech magnets. “There’s no roadblock at all on rare earth,” he said. “It’s a one-year deal that I think will be very routinely extended.” In exchange, Trump said the U.S. would lower the average tariff rate on Chinese imports from 57.6% to 47.6%. Trump emphasized that Xi also committed to intensifying China’s crackdown on fentanyl exports, which have been a major driver of overdose deaths in the United States. “We agreed he’s going to work very hard to stop the flow,” Trump said. “I think you’re going to see a big difference.”

Beijing also pledged to resume “tremendous” purchases of American soybeans, reversing its earlier retaliatory halt. In a Truth Social post later Thursday, Trump said China had additionally agreed to begin purchasing U.S. oil and gas, noting that “a very large-scale transaction may take place concerning the purchase of oil and gas from the Great State of Alaska.” The president confirmed that Taiwan was not discussed during the meeting but said both sides talked about working together to bring an end to the war in Ukraine. “We didn’t really discuss the Russian oil,” he added. “We discussed working together to see if we can get that war finished.”

The meeting, held at a South Korean air base, marked the first in-person exchange between Trump and Xi since his return to the White House. The two leaders greeted each other warmly, with Xi telling Trump, “Great pleasure to see you again.” Xi praised Trump’s leadership, saying, “China’s development goes hand in hand with your vision to make America great again,” and added that the two nations “are fully able to help each other succeed and prosper together.” Much of Thursday’s agreement builds upon a framework negotiated earlier this month in Kuala Lumpur between U.S. and Chinese trade teams.

Trump said he plans to visit China in April, calling the meeting “amazing” and “an outstanding group of decisions.” He did not say whether the pending TikTok deal was discussed. The renewed cooperation on fentanyl follows years of tension over China’s role in the U.S. opioid crisis. The CDC reports the drug has killed nearly 330,000 Americans in the past five years — roughly one in every 1,000 people. Trump has long pressed Beijing to stop the export of precursor chemicals used to make fentanyl, arguing the problem is both moral and economic. “They make $100 million selling fentanyl into our country,” Trump said last week. “They lose $100 billion with the 20% tariff. It’s not a good business proposition.”

Trump left Thursday’s summit expressing confidence that the new arrangement marked a major step forward. “On the scale of 0 to 10, with 10 being the best, I would say the meeting was a 12,” he said. “It was an amazing meeting — and I think this deal will go on for a long time.”

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Canada’s attack on religious charities makes no fiscal sense

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This article supplied by Troy Media.

Troy MediaBy Lee Harding

Ottawa is targeting the charitable tax status of faith-based groups. The fallout could hit every Canadian community

The possibility that Canadian religious organizations will lose their charitable status has never been more real.

On Jan. 6, Parliament’s Standing Committee on Finance recommended numerous changes, including Recommendation 430: “Amend the Income Tax Act to define a charity, which would remove the privileged status of ‘advancement of religion’ as a
charitable purpose, meaning faith-based organizations could lose access to tax benefits.”

The B.C. Humanist Association, a secular advocacy group, has long advocated for removing religion as a stand-alone charitable purpose. That idea is reflected in Recommendation 430. Before adopting such a proposal, the finance committee should have reviewed a study published last November by Cardus, a Canadian think tank focused on faith, civil society and public policy.

The Cardus study examined 64 Christian congregations in various provinces to assess the socio-economic value of their impact. It suggested that congregations make an $18.2-billion socioeconomic contribution to Canadian society, well in excess of tax exemptions and rebates equal to $1.7 billion. The net positive result of $16.5 billion—a “halo effect”—is more than 10
times the value of the tax exemptions.

The implications are clear: society will be worse off if the loss of religious charitable status leads to a drop of more than 10 per cent in donations to affected charities. Why risk it?

When congregations unravel, society follows in ways that go beyond mere economics. As Cardus explains, churches often provide space, often at no cost or below-market rates, for cultural and artistic events, recreation and sports, education, social services and other community activities. They also deliver addiction recovery, counselling and mental-health support, child care, refugee sponsorship and settlement services for newcomers, education and food banks.

Whether institutionally or personally, helping people is often an integral extension of religious belief. A 2012 Statistics Canada study found that the 14 per cent of Canadians who attend church weekly offer 29 per cent of the nation’s volunteer hours and provide 45 per cent of all charitable donations.

No party has explicitly endorsed removing charitable status for religion. But the Bloc Québécois, NDP and Liberals dominated the committee recommendation to remove religion as a charitable purpose. The Conservative Party, which held a minority on the committee, was alone in opposing it outright.

Randy Crosson, executive director of Freedoms Advocate, is organizing a national pushback. In a speech given Oct. 1 to the Regina Civic Awareness and Action Network, he said the recommendation was a “shot across the bow” to gauge public reaction.

“This isn’t just about donors losing tax receipts. It’s about churches losing buildings, staff losing jobs, and ministries being forced to shut down due to reduced donations. This is a direct threat to the future of faith in Canada, and it’s happening fast,” Crosson explained in an online video.

Crosson said religion enjoys less participation and more opposition than in previous decades. Church attendance has slumped since the pandemic, and some Canadians continue to criticize churches for their historical involvement in residential schools.

The Quebec government has also pursued a strongly secular approach to public policy. In 2019, Quebec’s Bill 21 used the notwithstanding clause of the Constitution to ban public servants from wearing religious symbols, such as hijabs, turbans or crucifixes. In August, Quebec’s secularism minister, Jean François Roberge, said that the “proliferation of street prayer is a serious and sensitive issue” and promised to bring legislation to ban it.

That’s why Crosson is urging religious leaders to launch a three-part campaign.

“First, an open letter drafted with legal and faith leaders to show government and the media the real value of the church in Canadian society. Second, mass signatures. We need churches, leaders and individuals to sign the letter,” Crosson says in a video appeal. “And third, a national documentary based on the open letter. This will be released publicly and spread through churches, media and social platforms.”

The Frontier Centre for Public Policy has also come out publicly against the proposed change. A report by Senior Fellow Pierre Gilbert entitled Revoking the Charitable Status for the Advancement of Religion: A Critical Assessment makes a case for the status quo, pointing to benefits such as those mentioned above.

For now, at least, the idea is on hold. A published email response by Liberal MP Karina Gould, the chair of the House of Commons’ Standing Committee on Finance, said the charitable status of faith-driven non-profits will not be revoked in the Nov. 4 budget.

That’s good news. Faith is a big motivator of charity, and it’s hard to see how a less charitable society is a better one. If governments want to balance the books, they should rein in spending, not put faith-based charities at risk.

Lee Harding is a research fellow for the Frontier Centre for Public Policy. 

Troy Media empowers Canadian community news outlets by providing independent, insightful analysis and commentary. Our mission is to support local media in helping Canadians stay informed and engaged by delivering reliable content that  strengthens community connections and deepens understanding across the country

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