You don’t offer sweets to someone who has just gone on a diet.
Posted at 5:00 a.m.
Yet that’s what our politicians are doing by offering who better to lower taxes and taxes to help citizens digest the increase in the cost of living.
Economically, this is completely counter-productive. We will come back later.
But on the electoral level, it works! The re-election of Doug Ford, with an even higher majority than in his first term, demonstrated this on Thursday.
During the campaign, the Ontario Premier announced a reduction in the provincial gasoline tax, a measure that the leader of the Conservative Party of Quebec, Éric Duhaime, would like to imitate.
Doug Ford had also abolished registration fees, retroactively on top of the market, which means that motorists have all received a refund. A little more and Mr. Ford would turn into a postman to personally deliver them to the house!
The premier of Quebec is no exception. Even if he is well ahead in voting intentions, François Legault has seen fit to dangle another check this week to deal with the rising cost of living… but only if he is re-elected on October 3. .
For its part, the Liberal Party advocates a reduction in the QST on basic necessities.
At the federal level, the candidates for the leadership race of the Conservative Party, Pierre Poilievre and Jean Charest, also have their candy box. But they will have to explain to us how they will combine this with the objective of cleaning up public finances, they who rail against the spending tendencies of Justin Trudeau, rightly.
Obviously, inflation hurts family budgets. A price increase of 6.8%, we had not seen that since 1991.
Where is it going to stop? Is there a pilot on the plane ?
The problem is that there are two. And they fly in opposite directions.
On the one hand, the Bank of Canada is trying to curb inflation by raising interest rates. Its key rate rose from 1% to 1.5% this week and could reach 3% soon.
On the other, governments are stepping on the accelerator by sending checks to citizens whose disposable incomes are above the pre-pandemic level.
By stimulating demand, politicians are not helping the Bank of Canada achieve a soft landing, which will not be easy with all the turbulence on the horizon: Chinese lockdown and supply issues, war in Ukraine and food crisis in sight…
Let’s not stick our heads in the sand: the risks of recession are far from negligible. In this context, one should show healthy caution and avoid distributing candy on credit.
Because governments remain in the red. The pandemic has caused their debts to skyrocket. And their level of spending has increased with the launch of new permanent programs.
While the economy is running at full capacity, it would be wiser to pay off debts to have the necessary flexibility in the event of a pullback.
So, even if it pays off politically, it is better to drop the generalized sweets, like the $500 check sent to 94% of the population during the Quebec budget last March.
It would be wiser to stick to targeted aid for the poorest, who are hit much harder by inflation. Temporary relief, not permanent tax relief that will starve the state coffers of revenue, even when inflation returns to earth.
This is what Quebec did last November. This is what New Brunswick has just done this week, with the announcement of $450 in assistance for low-income families.
If we are looking for truly structuring measures, we have to go about it differently.
Instead of reducing gasoline taxes, let’s invest in the energy transition so as not to leave an environmental deficit for our children.
Instead of handing out checks, let’s invest in our productivity. With labor shortages putting pressure on wages, we need more technology and equipment if we want to do more with less.
But in this regard, Canada is a dunce.
This week, former federal finance minister Bill Morneau complained that the Liberals had spent “too much time redistributing wealth and not enough increasing collective prosperity” since he left ship.
One does not prevent the other. But we have to stop giving candy to everyone.