Latest federal budget will continue trend of negative outcomes for Canadians

From the third quarter of 2015 to the fourth quarter of 2023, growth in real GDP per-person (a common indicator of living standards) was less than 1 per cent cumulatively versus more than 15 per cent in the United States. This despite—or more accurately, because of—massive government spending including on corporate subsidies

Reading the federal budget, which the Trudeau government tabled last week, is not an activity likely to improve the equanimity of Canadians suffering from over-taxation and anxious about stagnating living standards. The fact is, the budget sets Canadians even further behind with increased costs and higher taxes, which are sure to reduce productivity and investment further.

In terms of taxes, the main headline is the increase to the capital gains tax to a two-thirds inclusion rate for amounts over $250,000 per year. With Canada’s business investment numbers already dismal, the capital gains tax hike makes things worse by discouraging entrepreneurship and distorting economic decisions to favour present day consumption instead of saving and investment. Indeed, because people know the money they earned today will be taxed more heavily when they invest it tomorrow, the capital gains tax hike reduces incentives to work and earn today.

When it comes to costs, the “total expenses” line in the fiscal tables is most instructive. In last year’s budget, the Trudeau government said it would spend $496.9 billion in 2023-24 and $513.5 billion in 2024-25, rising to $556.9 billion by 2027-28 for a total of $2.6 trillion over five years. But according to this year’s budget, its $505.1 billion for 2023-24, $537.6 billion in 2024-25 and $588.2 billion by 2027-28, for a total of $2.8 trillion over the same five-year period, with both higher program spending and greater borrowing costs contributing to the increase.

In other words, the Trudeau government overspent its budget last year by an estimated $8.2 billion, has increased its spending for this year by $24.1 billion, and will now overspend last year’s fiscal plan by a total of $120.8 billion over five years. And that’s assuming the Liberals stick to the spending plan they just tabled. The Trudeau government has a track record of blowing past its original spending targets, often by astonishing margins, a trend continued in its latest budget. So taxpayers might reasonably expect even the significantly increased costs presented in this latest budget are an understatement.

Canadians might find the exorbitant costs of federal spending easier to accept if they saw some benefits commensurate to the spending, but they have not. From the third quarter of 2015 to the fourth quarter of 2023, growth in real GDP per-person (a common indicator of living standards) was less than 1 per cent cumulatively versus more than 15 per cent in the United States. This despite—or more accurately, because of—massive government spending including on corporate subsidies and other initiatives the government claimed would boost economic growth. Clearly, such growth has not materialized.

The latest budget increased spending for the national child-care program, but the thing has been a disaster from coast to coast, with families unable to find spots, daycare operators in dire straits, and costs to taxpayers ballooning. Similarly, while health-care spending has risen over the years, access to medical care has gone down. Spending and regulation related to climate change have exploded under the Trudeau government, but the environmental benefits of initiatives such as electric vehicle consumer subsidies and plastic bans, if there are any environmental benefits at all, are nowhere near high enough to offset the burden to taxpayers and consumers.

Clearly, the Trudeau government’s ramp-up in spending and increased taxation, as the GDP and investment figures show, have produced severely negative outcomes for eight years. By ramping spending and taxation up yet higher, it will help continue these negative outcomes.

Author:

Matthew Lau

Adjunct Scholar, Fraser Institute

Related Topics:#2024FederalBudget #DeficitSpending #FederalDebt #FraserInstitute #GDP #JustinTrudeau #MatthewLau #NegativeOutcomesForCanadians

Up Next

Ottawa’s capital gains tax hike—final nail in ‘business investment’ coffin

Don't Miss

“The Numbers Favour Our Side”

Todayville

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

Andrew Scheer exposes the Mark Carney Canadians should know

Daily Caller / 3 hours ago

NEWT GINGRICH: Europe’s Elites Were Finally Told To Take A Look In The Mirror

armed forces / 4 hours ago

Trump fires chairman of Joint Chiefs of Staff, appoints new military leader

Business

Worst kept secret—red tape strangling Canada’s economy

Published on February 22, 2025

Todayville

From the Fraser Institute

By Matthew Lau

In the past nine years, business investment in Canada has fallen while increasing more than 30 per cent in the U.S. on a real per-person basis. Workers in Canada now receive barely half as much new capital per worker than in the U.S.

According to a new Statistics Canada report, government regulation has grown over the years and it’s hurting Canada’s economy. The report, which uses a regulatory burden measure devised by KPMG and Transport Canada, shows government regulatory requirements increased 2.1 per cent annually from 2006 to 2021, with the effect of reducing the business sector’s GDP, employment, labour productivity and investment.

Specifically, the growth in regulation over these years cut business-sector investment by an estimated nine per cent and “reduced business start-ups and business dynamism,” cut GDP in the business sector by 1.7 percentage points, cut employment growth by 1.3 percentage points, and labour productivity by 0.4 percentage points.

While the report only covered regulatory growth through 2021, in the past four years an avalanche of new regulations has made the already existing problem of overregulation worse.

The Trudeau government in particular has intensified its regulatory assault on the extraction sector with a greenhouse gas emissions cap, new fuel regulations and new methane emissions regulations. In the last few years, federal diktats and expansions of bureaucratic control have swept the auto industry, child care, supermarkets and many other sectors.

Again, the negative results are evident. Over the past nine years, Canada’s cumulative real growth in per-person GDP (an indicator of incomes and living standards) has been a paltry 1.7 per cent and trending downward, compared to 18.6 per cent and trending upward in the United States. Put differently, if the Canadian economy had tracked with the U.S. economy over the past nine years, average incomes in Canada would be much higher today.

Also in the past nine years, business investment in Canada has fallen while increasing more than 30 per cent in the U.S. on a real per-person basis. Workers in Canada now receive barely half as much new capital per worker than in the U.S., and only about two-thirds as much new capital (on average) as workers in other developed countries.

Consequently, Canada is mired in an economic growth crisis—a fact that even the Trudeau government does not deny. “We have more work to do,” said Anita Anand, then-president of the Treasury Board, last August, “to examine the causes of low productivity levels.” The Statistics Canada report, if nothing else, confirms what economists and the business community already knew—the regulatory burden is much of the problem.

Of course, regulation is not the only factor hurting Canada’s economy. Higher federal carbon taxes, higher payroll taxes and higher top marginal income tax rates are also weakening Canada’s productivity, GDP, business investment and entrepreneurship.

Finally, while the Statistics Canada report shows significant economic costs of regulation, the authors note that their estimate of the effect of regulatory accumulation on GDP is “much smaller” than the effect estimated in an American study published several years ago in the Review of Economic Dynamics. In other words, the negative effects of regulation in Canada may be even higher than StatsCan suggests.

Whether Statistics Canada has underestimated the economic costs of regulation or not, one thing is clear: reducing regulation and reversing the policy course of recent years would help get Canada out of its current economic rut. The country is effectively in a recession even if, as a result of rapid population growth fuelled by record levels of immigration, the GDP statistics do not meet the technical definition of a recession.

With dismal GDP and business investment numbers, a turnaround—both in policy and outcomes—can’t come quickly enough for Canadians.

Matthew Lau

Adjunct Scholar, Fraser Institute

Business

New climate plan simply hides the costs to Canadians

Published on February 20, 2025

Todayville

From the Fraser Institute

By Kenneth P. Green

Mark Carney, who wants to be your next prime minister, recently released his plan for Canada’s climate policies through 2035. It’s a sprawling plan (climate plans always are), encompassing industrial and manufacturing emissions, vehicle emissions, building emissions, appliance emissions, cross-border emissions, more “green” energy, more “heat pumps” replacing HVAC, more electric vehicle (EV) subsidies, more subsidies to consumers, more subsidies to companies, and more charging stations for the EV revolution that does not seem to be happening. And while the plan seeks to eliminate the “consumer carbon tax” on “fuels, such as gasoline, natural gas, diesel, home heating oil, etc.” it’s basically Trudeau’s climate plans on steroids.

Consider this. Instead of paying the “consumer carbon tax” directly, under the Carney plan Canadians will pay more—but less visibly. The plan would “tighten” (i.e. raise) the carbon tax on “large industrial emitters” (you know, the people who make the stuff you buy) who will undoubtedly pass some or all of that cost to consumers. Second, the plan wants to force those same large emitters to somehow fund subsidy programs for consumer purchases to offset the losses to Canadians currently profiting from consumer carbon tax rebates. No doubt the costs of those subsidy programs will also be folded into the costs of the products that flow from Canada’s “large industrial emitters,” but the cause of rising prices will be less visible to the general public. And the plan wants more consumer home energy audits and retrofit programs, some of the most notoriously wasteful climate policies ever developed.

But the ironic icing on this plan’s climate cake is the desire to implement tariffs (excuse me, a “carbon border adjustment mechanism”) on U.S. products in association with “key stakeholders and international partners to ensure fairness for Canadian industries.” Yes, you read that right, the plan seeks to kick off a carbon-emission tariff war with the United States, not only for Canada’s trade, but to bring in European allies to pile on. And this, all while posturing in high dudgeon over Donald Trump’s plans to impose tariffs on Canadian products based on perceived injustices in the U.S./Canada trade relationship.

To recap, while grudgingly admitting that the “consumer carbon tax” is wildly unpopular, poorly designed and easily dispensable in Canada’s greenhouse gas reduction efforts, the Carney plan intends to double down on all of the economically damaging climate policies of the last 10 years.

But that doubling down will be more out of sight and out of mind to Canadians. Instead of directly seeing how they pay for Canada’s climate crusade, Canadians will see prices rise for goods and services as government stamps climate mandates on Canada’s largest manufacturers and producers, and those costs trickle down onto consumer pocketbooks.

In this regard, the plan is truly old school—historically, governments and bureaucrats preferred to hide their taxes inside of obscure regulations and programs invisible to the public. Canadians will also see prices rise as tariffs imposed on imported American goods (and potentially services) force American businesses to raise prices on goods that Canadians purchase.

The Carney climate plan is a return to the hidden European-style technocratic/bureaucratic/administrative mindset that has led Canada’s economy into record underperformance. Hopefully, whether Carney becomes our next prime minister or not, this plan becomes another dead letter pack of political promises.