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Economy

The Good, the Bad and the Ugly—government budgets in 2024

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From the Fraser Institute

By Grady Munro and Jake Fuss

Research showed the federal government could balance its budget in two years by slowing spending growth, yet instead the government doubled down and increased spending well past its previous estimates (against the wishes of Canadians)

This fiscal year, most provinces (and the federal government) demonstrated irresponsible fiscal management, although some were better than others. Therefore, in the words of the 1966 film starring Clint Eastwood, let’s discuss The Good, the Bad and the Ugly of Canadian government budgets in 2024.

Falling in the “good” category are Alberta and New Brunswick—the only two provinces planning to run a balanced budget in 2024/25, with Alberta forecasting a $367 million surplus and New Brunswick forecasting a $41 million surplus. Both provinces forecast surpluses until at least 2026/27, and expect net debt (total debt minus financial assets) as a share of the economy to decline in the years to come. However, what keeps these provinces from having a great budget is that both chose to further increase spending in the face of higher revenues, while failing to deliver much-needed tax relief.

Alberta in particular remains at risk of seeing future surpluses disappear, as the province relies on historically high resource revenues to fund its high spending. Should these volatile revenues decline, the province would return to operating at a deficit and growing its debt burden.

Provinces in the “bad” category include, but aren’t limited to, Saskatchewan and Newfoundland and Labrador. Largely due to quick growth in program spending that wipes out any revenue gains, both provinces expect deficits in 2023/24 and 2024/25 before planning to balance their budgets in 2025/26. The risks of unchecked spending growth are most salient in Saskatchewan, where just one year ago the province projected surpluses in both 2023/24 and 2024/25. And resulting from many years of deficits and debt accumulation, debt interest costs in Newfoundland and Labrador are expected to reach $2,123 per person in 2024/25, the highest in Canada.

Key governments among the “ugly” are the federal government, Ontario and British Columbia. Let’s take them one by one.

The federal government delivered a budget that continues the same failed approach that’s produced nearly a decade of stagnation in Canadian living standards. The Trudeau government plans to run a $39.8 billion deficit in 2024/25, followed by deficits of $20.0 billion or higher until at least 2028/29. Prior to the budget, research showed the federal government could balance its budget in two years by slowing spending growth, yet instead the government doubled down and increased spending well past its previous estimates (against the wishes of Canadians).

In addition to continuous spending increases and debt accumulation, the Trudeau government increased capital gains taxes on all businesses and many Canadians. Presented as a way to make the tax system more “fair” while generating $20 billion in revenue, in reality it is a harmful tax increase that is unlikely to generate the planned amount of revenues while simultaneously hindering economic growth and prosperity.

Similar to the federal government, in its 2024 budget Ontario’s Ford government simply doubled down on the same approach it’s taken in previous years. This “stay the course” fiscal plan added an average of $3.8 billion in new annual program spending (compared to last year’s budget) over the three years from 2023/24 to 2025/26. This new spending delays the province’s expected return to surpluses until 2026/27, and rather than run a $200 million surplus in 2024/25 the Ford government now plans to run a $9.8 billion deficit.

Importantly, the Ford government failed to deliver any meaningful tax relief for Ontarians in this budget, which once again breaks its promise to reduce personal income tax rates. Given that Ontarians face some of the highest personal income tax rates in North America, relief would help keep money in people’s pockets while also promoting economic growth.

Finally, the Eby government in B.C. tabled a budget that can be best described as a generational error in terms of the planned debt accumulation. The government plans to run a $7.9 billion deficit in 2024/25, followed by deficits of $7.8 billion and $6.4 billion in 2025/26 and 2026/27, respectively. In other words, the Eby government plans to run deficits in the coming years that are nearly as large or larger than those expected in Ontario, despite B.C. having a little over one-third of Ontario’s population.

Runaway spending drives these deficits and will contribute to a $55.1 billion (74.7 per cent) increase in provincial net debt from 2023/24 to 2026/27. This massive runup in debt will result in higher debt interest costs, which leaves less money available for services such as healthcare and education, or pro-growth tax relief for British Columbians.

By and large, governments across Canada demonstrated an irresponsible approach to managing public finances in this year’s round of budgets. While there were a couple of bright spots, the majority of provinces instead chose to increase spending, grow deficits and debt, and introduce little to no meaningful tax relief.

Economy

Ottawa’s new ‘climate disclosures’ another investment killer

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From the Fraser Institute

By Matthew Lau

The Trudeau government has demonstrated consistently that its policies—including higher capital gains taxes and a hostile regulatory environment—are entirely at odds with what investors want to see. Corporate head offices are fleeing Canada and business investment has declined  significantly since the Trudeau Liberals came to power.

According to the Trudeau government’s emissions reduction plan, “putting a price on pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions.” Fair enough, but a reasonable person might wonder why the same politicians who insist a price mechanism (i.e. carbon tax) is the most efficient policy recently announced relatively inefficient measures such “sustainable investment guidelines” and “mandatory climate disclosures” for large private companies.

The government claims that imposing mandatory climate disclosures will “attract more private capital into Canada’s largest corporations and ensure Canadian businesses can continue to effectively compete as the world races towards net-zero.” That is nonsense. How would politicians Ottawa know better than business owners about how their businesses should attract capital? If making climate disclosures were a good way to help businesses attract capital, the businesses that want to attract capital would make such disclosures voluntarily. There would be no need for a government mandate.

The government has not yet launched the regulatory process for the climate disclosures, so we don’t know exactly how onerous it will be, but one thing is for sure—the disclosures will be expensive and unnecessary, imposing useless costs onto businesses and investors without any measurable benefit, further discouraging investment in Canada. Again, if the disclosures were useful and worthwhile to investors, businesses seeking to attract investment would make them voluntarily.

Even the government’s own announcement casts doubt that increasing business investment is the likely outcome of mandatory climate disclosures. While the government says it’s “sending a clear signal to corporate boards and shareholders, at home and around the world, that Canada is their trusted partner for putting private capital to work in the race to net-zero,” most investors are not looking to put private capital to work to combat climate change. Most investors want to put their capital to work to earn a good financial return, after adjusting for the risk of the investment.

This latest announcement should come as no surprise. The Trudeau government has demonstrated consistently that its policies—including higher capital gains taxes and a hostile regulatory environment—are entirely at odds with what investors want to see. Corporate head offices are fleeing Canada and business investment has declined significantly since the Trudeau Liberals came to power. Capital per worker in Canada is declining due to weak business investment since 2015, and new capital per-Canadian worker in 2024 is barely half of what it is in the United States.

It’s also fair to ask, in the face of these onerous polices—where are the environmental benefits? The government says its climate disclosures are needed for Canada to progress to net-zero emissions and “uphold the Paris climate target of limiting global warming to 1.5°C above pre-industrial levels,” but its net-zero targets are neither feasible nor realistic and the economics literature does not support the 1.5 degrees target.

Finally, when announcing the new climate disclosures, Trudeau Environment Minister Steven Guilbeault said they are an important stepping stone to a cleaner economy, which is a “major economic opportunity.” Yet even the Canada Energy Regulator (a federal agency) projects net-zero policies would reduce real GDP per capita, increase inflation of consumer prices and reduce residential space (in other words, reduce living standards).

A major economic opportunity that will increase business investment? Surely not—mandatory climate disclosures will only further reduce our standard of living and impose useless costs onto business and investors, with the sure effect of reducing investment.

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Business

Premiers fight to lower gas taxes as Trudeau hikes pump costs

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From the Canadian Taxpayers Federation

By Jay Goldberg 

Thirty-nine hundred dollars – that’s how much the typical two-car Ontario family is spending on gas taxes at the pump this year.

You read that right. That’s not the overall fuel bill. That’s just taxes.

Prime Minister Justin Trudeau keeps increasing your gas bill, while Premier Doug Ford is lowering it.

Ford’s latest gas tax cut extension is music to taxpayers’ ears. Ford’s 6.4 cent per litre gas tax cut, temporarily introduced in July 2022, is here to stay until at least next June.

Because of the cut, a two-car family has saved more than $1,000 so far. And that’s welcome news for Ontario taxpayers, because Trudeau is planning yet another carbon tax hike next April.

Trudeau has raised the overall tax burden at the pumps every April for the past five years. Next spring, he plans to raise gas taxes by another three cents per litre, bringing the overall gas tax burden for Ontarians to almost 60 cents per litre.

While Trudeau keeps hiking costs for taxpayers at the pumps, premiers of all stripes have been stepping up to the plate to blunt the impact of his punitive carbon tax.

Obviously, Ford has stepped up to the plate and has lowered gas taxes. But he’s not alone.

In Manitoba, NDP Premier Wab Kinew fully suspended the province’s 14 cent per litre gas tax for a year. And in Newfoundland, Liberal Premier Andrew Furey cut the gas tax by 8.05 cents per litre for nearly two-and-a-half years.

It’s a tale of two approaches: the Trudeau government keeps making life more expensive at the pumps, while premiers of all stripes are fighting to get costs down.

Families still have to get to work, get the kids to school and make it to hockey practice. And they can’t afford increasingly high gas taxes. Common sense premiers seem to get it, while Ottawa has its head in the clouds.

When Ford announced his gas tax cut extension, he took aim at the Liberal carbon tax mandated by the Trudeau government in Ottawa.

Ford noted the carbon tax is set to rise to 20.9 cents per litre next April, “bumping up the cost of everything once again and it’s absolutely ridiculous.”

“Our government will always fight against it,” Ford said.

But there’s some good news for taxpayers: reprieve may be on the horizon.

Federal Conservative leader Pierre Poilievre’s promises to axe the carbon tax as soon as he takes office.

With a federal election scheduled for next fall, the federal carbon tax’s days may very well be numbered.

Scrapping the carbon tax would make a huge difference in the lives of everyday Canadians.

Right now, the carbon tax costs 17.6 cents per litre. For a family filling up two cars once a week, that’s nearly $24 a week in carbon taxes at the pump.

Scrapping the carbon tax could save families more than $1,200 a year at the pumps. Plus, there would be savings on the cost of home heating, food, and virtually everything else.

While the Trudeau government likes to argue that the carbon tax rebates make up for all these additional costs, the Parliamentary Budget Officer says it’s not so.

The PBO has shown that the typical Ontario family will lose nearly $400 this year due to the carbon tax, even after the rebates.

That’s why premiers like Ford, Kinew and Furey have stepped up to the plate.

Canadians pay far too much at the pumps in taxes. While Trudeau hikes the carbon tax year after year, provincial leaders like Ford are keeping costs down and delivering meaningful relief for struggling families.

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