New taxes on the horizon
Pandemic invoice is about to arrive for Canadians
More federal government spending was recently announced raising this year’s federal budget deficit to near $400 billion.
Voters continue to express little concern regarding governments running large budget deficits.
In my opinion, voters simply believe it is someone else’s problem and not theirs. Many do not understand voters and taxpayers are one and the same and liable for the government’s debt.
After all, the Liberal government was elected with a majority back in 2015 promising to run a one-time $10 billion budget deficit to fund infrastructure improvements which voters thought reasonable after constantly hearing about balancing budgets under a Stephen Harper government. Every year since the Liberals have not once forecast a balanced budget or even a future date when the budget would be balanced.
In the February 2020 budget prior to the pandemic outbreak, a $26 billion-dollar federal budget deficit was forecasted. No one blinked an eye. Structural deficits have become the norm. It is as if voters believe the government has a credit card with no repayment obligations.
Even Finance Minister Chrystia Freeland touts that $8 out of every $10 borrowed to fight the pandemic was borrowed by the federal government. That statement creates the false sense of security that Canadians don’t have to worry about this ballooning debt because the government will look after the problem. What is lost in this context is that we the taxpayers are the government and we fund all spending whether it be budgeted or deficit-financed.
Publicly criticizing a ballooning federal deficit during a pandemic is not popular with many Canadians. The public simply believes the spending is justified and no questions should ever be asked. I don’t deny that government spending was vital to protect many Canadians during the pandemic. But leading the voters to believe taxpayers are not liable for the spending is not being transparent.
The finance minister says rising spending is only temporary. She claims it is limited and used to battle a once-ina-century kind of crisis. But that was the same argument used by the Liberals during the 2015 election to justify deficit spending. Why should we trust this finance minister or prime minister when their track record says otherwise?
It is no secret that the total national debt in Canada has now gone well past the $1 trillion mark. “Have mercy on the grandchildren for they shall inherit the debt” is not far from the truth. Federal debt servicing costs are now estimated to be near $29 billion annually and this is modest considering interest rates are now at historic lows.
Federal debt servicing cost is significant. To put debt servicing costs into perspective, total annual GST revenue collected by the federal government is near $30 billion, total annual health-care transfers to the provinces are around $32 billion and annual Old Age Security payments to seniors amounts to about $33 billion according to a study from the Fraser Institute. Debt as percentage of GDP in Canada is expected to rise from 33 per cent in 2020 to near 59 per cent in 2021 mainly due to pandemic spending.
The Liberal government only talks spending these days and avoids any discussion around increased taxation or repaying the national debt. No government wants to have difficult conversations about raising taxes with voters before a national election.
It is fair to predict a federal election will be called in the spring as COVID-19 vaccines are rolled out and before federal pandemic spending begins to subside.
Despite political scandals and several ethics breaches, the prime minister remains popular with Canadians as a result of his pandemic spending spree. But he also understands his popularity will tank once the spending stops. When breaking the news on raising taxes after an election, he will do his best to convince voters, “we must all do our part for the good of our country”.
New taxes proposed on Amazon, Netflix and Airbnb in the recent fall federal economic statement are forecast to bring in $3 billion over a five-year period. That sounds great but it does not generate near enough new cash for the government to make a dent in the national debt or fund new social programs.
The current government has a poor track record of stimulating economic expansion to raise revenues to improve Canadian’s wellbeing. Their approach has simply been to create programs for Canadians and fund them with borrowed money. That is a receipt for fiscal disaster in my opinion.
In the absence of an expanding economy, the need for higher taxes will soon become evident. That will be a thorny issue for shocked voters once COVID-19 spending ends.
The first tax the federal government will likely increase will be the GST which impacts all of us at the cash register. Canadians can expect the GST to go up by at least two percentage points after a federal election to help fund new social programs. So, don’t wait too long before buying that new car or set of home appliances.