Economic dangers ahead

Economic dangers ahead

ahead by Maj (ret'd) CORNELIU E. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East As we embrace the closing days of summer and activities start again in full swing, including back-to-school, it is worth looking at what the immediate future holds for us. The Parliament of Canada will start its fall session in a couple of weeks and new legislation will be brought forward. It will be interesting to see if and how the governing liberals deal with the economy, which is not looking very promising. Increasing taxes, skyrocketing government debt, expanding regulations, soaring inflation and rising interest rates. This may sound like we're describing Canada today, but in fact these were the policy decisions and circumstances that defined Pierre Trudeau's liberal government in the 1970s and early 1980s, which eventually culminated in a near crisis. In my opinion this is clear evidence that the study of history is a worthwhile endeavor. Unfortunately, nowadays the study of history is a thing of the past, so how can we learn from it to avoid repeating the mistakes of our ancestors? So here we are, 50-some-odd-years later, and Prime Minister Justin Trudeau's liberal government is repeating his father's policies and pitfalls. Like father like son, as the English say? So let's take a closer look: Embracing new and expanded futuristic programs, and spending significantly more than the government collected in revenue, Pierre Trudeau recorded a budget deficit every year excluding a small surplus in 1969-70. Total federal debt (inflation-adjusted) grew from $262 billion in 1967 to $700 billion in 1984-an increase of 167 per cent. Two generation later, Prime Minister Justin Trudeau, notably, recorded the highest levels of per-person (inflation-adjusted) spending to-date in 2018, 2019 and 2020. Similar to his father's tenure, borrowing has financed much of Justin Trudeau's new spending. Indeed, Justin Trudeau has recorded a deficit every year since taking office while total federal debt (inflation-adjusted) has grown from $1.2 trillion in 2014 to $1.9 trillion in 2021-an increase of 51 per cent. As he is likely to remain in the office for another three years, is there a chance that the deficit might increase even more? In both cases, higher spending by Ottawa accompanied by an expanded money supply led to increasing rates of inflation. In Pierre Trudeau's time, inflation reached more than 12 per cent by 1981. It took double-digit interest rates-which triggered a recession-to eventually break the Pierre Trudeau-era inflation and begin returning to price stability. Under Justin Trudeau, inflation has surged to 8.1 per cent, the largest year-over-year increase since the early 1980s under his father's government. In the past four months, the Bank of Canada has increased its key interest rate by 1.25 percentage points and sold significant holdings of government debt in an effort to reduce inflation. Moreover, the bank has clearly signalled that tightening will continue until inflation is brought under control, adding to the risk of a recession, which some financial institutions are already forecasting for 2023. Changes in taxes now similarly impair the economy as they did under Pierre Trudeau. Both Trudeaus introduced changes that hampered Canada's investment climate and competitiveness. In 1972, Pierre Trudeau introduced a tax on capital gains tied to personal income tax rates. Capital gains taxes-which apply to the sale of assets (such as a business or investment) when the sale price exceeds the original purchase price-are found to be among the most economically damaging taxes. Similarly, Justin Trudeau raised the top marginal income tax rate on entrepreneurs, professionals and business owners from 29 per cent to 33 per cent, with more economically damaging tax hikes on the horizon. Finally, both Trudeaus made a concerted effort to curtail the western-based oil and gas sector, which has heightened regional tensions. Pierre Trudeau introduced the National Energy Program, which sought to maintain domestic oil and gas prices below the international market price and tax more profits from the sector, creating animosity and distrust of Ottawa, particularly in Alberta. Justin Trudeau introduced a national carbon tax, under the climate change excuse, a cap on greenhouse gas emission that only applies to the oil and gas sector, and other regulations (namely, Bill C-69 and Bill C-48) that further constrain energy development. These policies have sparked significant animosity in the West, to the point that a "Fair Deal Panel" was appointed to review Alberta's role in the federation and this saga continues. The last decade or so of Pierre Trudeau's reign as prime minister was defined by high inflation, slower real economic growth and heightened regional tensions. Unfortunately for Canadians, the father's unsound policies that the son has followed are producing the same results. As we have seen, history is giving us important lessons. But if we do not learn from them, we will continue to make the same mistakes. However, these mistakes will be costlier with unforeseen circumstances in the current turbulent world. I leave you with these thoughts to reflect on the future for us and future generations. Let us hope for a brighter future and pursue a positive attitude and actions that can help bring it about. You decide.