Ottawa’s anti-inflation plan offers nothing new to struggling Canadians

Open this photo in gallery:

The Trudeau government recognized the growing peril that surging inflation posed to the economy and to the household budgets of Canadians.

“The widespread expectation six months ago that the tide of world inflation would begin to recede this year has been frustrated,” the finance minister said. The rising cost of oil and fertilizer was a global problem. “But we have a duty as a nation to keep our own house in order,” the minister added.

That was 1974, and it was John Turner in Pierre Trudeau’s government tabling an inflation-busting plan. Ottawa focused on tax cuts to reduce price pressures, coupled with expenditure restraint, but still boosted help for lower-income Canadians.

Chrystia Freeland emphasizes Ottawa’s focus on dealing with inflation, touts fiscal restraint

Forty-eight years later, Finance Minister Chrystia Freeland’s anti-inflation plan is the sum of only those actions that the government was already taking, most of which were announced before the Consumer Price Index began soaring. In some instances, Ms. Freeland’s $8.9-billion “affordability plan” includes policies that were put in place decades ago, by Mr. Turner.

In a Thursday speech to the Empire Club in Toronto, Ms. Freeland positioned those measures as a timely plan to offset inflationary pressures for the poorest Canadians, balanced with a commitment to fiscal restraint. “That’s the balance that I think we’ve found,” she told reporters after that lunchtime address.

But that balancing act depends on Canadians accepting both the Liberals’ rather expansive definition of fiscal prudence, and the assertion that years-old policies can be repurposed as inflation-fighting tools.

First, the Liberals’ claim to fiscal restraint only holds up when comparing the current deficit with the historically enormous shortfalls of the past two years. Ottawa is projecting a budget deficit equalling 2 per cent of gross domestic product for fiscal 2023.

Excluding the past two crisis years, Ottawa hasn’t run that large a deficit since 2011 – when the Canadian economy was still shaking off the effects of the financial crisis, and inflation was less than half of today’s level.

Ms. Freeland pointed out that Canada is, along with the United States, reducing its deficit at the fastest pace among Group of Seven countries. However, that is true in part because Canada ran the third-largest deficit, as a percentage of gross domestic product, in the G7 group in 2020, trailing only the U.S. and Britain. Canada may be climbing faster, but it started in a deeper hole.

Beyond the sheer size of the deficit, there is the question of how it is being spent. Alexandre Laurin, director of research for the C.D. Howe Institute, said much of the new spending in the April budget focused on consumption rather than investment for future growth. A national dental plan may be a worthwhile endeavour, but it is being paid for with borrowed dollars, and being injected into an inflation-ridden economy.

Ms. Freeland correctly pointed out that the Liberals are taking action to increase the supply of labour, both by increasing immigration levels and by rolling out subsidized child care nationally. Those policies could head off inflationary pressures from a tight labour market in coming years. But for the moment, wages are not driving inflationary pressures.

Mr. Laurin said he was encouraged that Ms. Freeland did not announce billions of dollars in new spending.

That’s true, and was a point that the Finance Minister made herself. She then went on to describe her $8.9-billion plan as “new money.” But that’s more of a new-to-you kind of new money.

The Liberals are seemingly assuming that Canadians weren’t paying attention the first time around, and will be delighted to discover that, say, Old Age Security payments for seniors over 75 will rise 10 per cent next month.

At least, however, that is a measure that this government implemented. Included in Ms. Freeland’s plan are indexation increases for the Canada Pension Plan, the OAS, the Guaranteed Income Supplement, low-income GST credits and the Canada Child Benefit.

Such increases have been government policy for decades (with Mr. Turner in Pierre Trudeau’s government adjusting the system nearly a half century ago to ease the bite of inflation).

Ms. Freeland has consistently pointed to indexation as one way that Ottawa is helping to ease cost-of-living pressures. But that contention ignores the fact that the structure of indexation badly lags inflation, with months or even years passing before benefit rates catch up.

There’s a similar gap between reality and Liberal rhetoric on the targeting of spending to low-income households. Higher OAS payments, although subject to clawback, go to anyone receiving the benefit. If the government had truly wanted to target the poorest seniors, it would have focused its efforts on the GIS. (And in fairness to the government, it has taken just such a step in boosting the Canada Workers Benefit for low-income households.)

Claims that subsidized child care qualifies as relief for low-income families are even more flimsy. For a start, only a minority of families outside Quebec have access to the licensed spots that qualify for subsidies. More broadly, families with older children don’t benefit, nor do those who have chosen not to use daycare.

Ms. Freeland’s speech was clearly an effort to communicate to Canadians that the Liberals are aware of, and on top of, the inflation problem. But even in that effort, the government continues to avoid drawing a line between Ottawa’s continuing large deficits and accelerating inflation.

“This is a global phenomenon, one driven by factors that no single country is responsible for, and that no single country can insulate itself from,” Ms. Freeland said in her speech.

That stands in stark contrast to what her predecessor, Mr. Turner, said when confronted with a similar challenge. “Inflation, whatever its origin or nature, and regardless of however favourably our situation compares with others, is simply not acceptable.”

Tax and Spend examines the intricacies and oddities of taxation and government spending.

Sign up for the Tax and Spend newsletter.