Trump risks Trudeau’s fairness aim
Justin Trudeau came to power promising a bold economic agenda.
He would not only encourage growth in what was still a struggling economy, he would also ensure that the rewards from this growth were distributed fairly.
“We want to build places where the middle class and those working hard to join it have a chance,” he said.
Soon after its election the Liberal government did follow through with a modest income tax change aimed at penalizing the rich.
The government also moved swiftly to increase federal child benefits going to middle and low income families.
But since then, with the notable exception of pension reform, this part of the Liberal agenda has stalled.
And the challenges posed by the election of Donald Trump to the U.S. presidency threaten to derail it.
Those who study income inequality say there are two standard ways to deal with it. One, the classic social democratic solution, is to allow the capitalist economy to create as much wealth as possible and then redistribute it — usually through the tax system.
The second is to reorganize the economy in a manner that ensures earned incomes are more equal from the get-go. In its purest form, this is old-fashioned Cuban-style socialism, where the state pays doctors and street sweepers the same.
In the modified version promoted by Liberals, the state does not control wages. But it does encourage education and training that allow low-paid workers to compete for better jobs.
It also encourages trade unions and other nonmarket actors able to confront employers who pay low wages. And it usually calls for a rise in the minimum wage — plus social programs to cushion those facing economic adversity.
The Trudeau Liberals’ tax policy to date has been designed to produce a modest redistribution from the rich to the not quite-so-rich.
Their useful, but equally modest, reform of the Canada Pension Plan is aimed at providing older workers of the future with a more reasonable amount of retirement income.
Other than that, the Liberals have taken the standard government route of setting up an advisory panel, this one called the Advisory Council on Economic Growth.
The council’s answer to income inequality boils down to constant retraining. Which is fine in itself but, as IT workers have found, does not necessarily protect highly trained Canadian workers from being replaced by cheaper but equally well-educated workers in, say, India. Enter Donald Trump. Trump’s election will not prevent the Trudeau Liberals from extolling the virtues of retraining.
But Trump’s vow to cut U.S. taxes “bigly” does make it more difficult for Canada to raise its levies on the well-to-do.
Last year, the finance minister announced plans to look at tax breaks, sometimes called tax expenditures, which cost the federal treasury billions. Well-to-do Canadians who earn their money in the form of capital gains (from buying and selling stocks, for instance) pay less in taxes than those whose income comes in the form of wages and salaries. A revamping of the tax expenditure system could end that anomaly.
But the Liberals will find it more difficult to boost taxes on the wealthy if, as expected, Trump’s America is going in the opposite direction.
Similarly, they will find it more difficult to fund social spending through deficits if Trump carries through with his promise to spend $1 trillion on infrastructure.
That’s because America’s spending, unlike Canada’s, is big enough to raise global interest rates. Big Trump deficits could make Ottawa’s relatively paltry borrowing considerably more expensive.
Finally, at a time when, thanks to Trump, the North American Free Trade Agreement is being renegotiated will Trudeau’s government have the time or energy to think about income inequality?
It is hard to imagine that it could, Right now the vibe from Ottawa is all Trump all the time. That’s not likely to change soon.