Trudeau’s Economic Strategy Is Failing


Higher taxes, more spending, weaker growth

A recent article in Bloomberg describes how Canada is running out of fiscal room, because of Justin Trudeau’s decisions:

“Justin Trudeau’s embrace of deficits won him accolades from global investors and policy makers, but not a full year into his first budget and Canada has run out of fiscal runway.”

That’s an effective description of Trudeau’s policies: Popular with global elites, but not so helpful here at home.

The Bloomberg article notes that the way things are going now, “there is no clear path to balance any time soon.”

A weaker economy is also to blame, as GDP projections are $100 billion less per year than budgeted for by the Trudeau government. That’s quite a forecasting error, and it makes you wonder what some of these “experts” are getting paid for (with our tax dollars I might add).

Falling further into debt

The clearest example of how Trudeau’s economic plan is failing is the revenue and expenditure picture.

Compared to projections under the previous government, Canada is now spending about 1% of GDP more per year. Yet, revenue projections compared to the previous government are about the same, and even slightly worse when you factor in the weaker economic outlook.

That may sound like a boring detail, but it points to something very important: Trudeau is spending more money to get worse results.

This is pushing Canada further into debt, with no end in sight. Consider this description of the situation from Bloomberg: “While Canada’s government can pay off all its current bills with existing revenue streams, it doesn’t raise enough money to fully pay off interest on debt.”

Credit rating worries

Australia is facing the loss of their AAA credit rating, due in large part to overall debt levels, (government, business, consumer). However, those levels are lower than Canada’s combined debt. Our household debt has reached a record level as well, meaning there is very little room for anyone to maneuver. The slightest shock to the economic system could through everything off-balance. The federal government’s rising debt load could lead to a credit rating downgrade in Canada – which would have a severe negative impact on our economy.

Higher taxes, more debt, less growth

So far, Trudeau’s economic plan has failed on all three counts. Our debt is going up, our taxes are going up, and our growth is going down. That’s a pretty tough trifecta to manage, so what’s going on?

I think the cause is something that isn’t talked about enough: Perception & emotion. While we look at our economy like a machine, we have to remember that economic stats are only the measurement of countless individual decisions. Many of those decisions are based on our hope/fear of the future. When there is more hope, there is more spending and investing – which grows the economy. When there is more fear, people pull back from economic activity, leading to a downturn.

Because of the extensive media attention they gather around them, leaders have a big impact on our perception of the future. While Trudeau certainly makes the politically correct elite feel happy, he is damaging business confidence, through tax increases, broken promises (creating uncertainty about future decisions), and his generally anti-growth outlook.

Trudeau clearly wants more regulations, more taxes, and more restrictions on business activity. The carbon tax he is imposing hurts business confidence – particularly for small businesses who can’t absorb more taxes and expenses. Consumers are doubtful about the impact of the carbon tax, and Trudeau has rarely expressed support for Canadian businesses, or brought in policies to help them compete.

Refusal to adapt

Also, Trudeau has been seemingly paralyzed by fear at the prospect of the Trump Administration’s plans to reduce regulation and business taxes in the US, and he has acted as if nothing at all has changed – even as Canadian companies and Canadian workers are about to face much stiffer US competition.

While Trudeau has buried his head in the sand and pretended nothing is wrong, Canadian businesses and foreign investors can see what’s happening. Canadian workers and consumers know what’s happening as well.

All of these things accumulate in public sentiment, altering individual emotion and perceptions of the economy. These perceptions lead to decisions that ripple out through the entire system in a way that can be more important than policy.

As a result, the growing sense that Trudeau doesn’t have what it takes to strengthen the Canadian economy is slowing our growth, and dampening any impact of policy decisions.

If people don’t believe in their leadership, and if people don’t have trust in the future of the economy, no amount of spending will make things any better.

Justin Trudeau has yet to learn that lesson, and because of his refusal to grow and adapt to new circumstances, Canadians are learning it the hard way.

Spencer Fernando

Photo – Twitter


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