Inflation shapes the current elections. And what do voters expect from their future government: preventive measures to contain inflation or relief measures in the face of its harmful effects? Probably a combination of the two.
Posted at 2:00 p.m.
As the election campaign draws to a close, it is clear that political party platforms are focusing their actions and resources on relief measures – tax cuts, check remittances, tariff freezes, tax holidays – and neglect their mission of prevention.
The peak of inflation
If it were shown that the worst of the inflationary crisis is behind us, we might better understand why those who aspire to power do not pay more attention to prevention. But inflation is difficult to predict and very few people have practical experience of it since the last inflationary crisis dates back 40 years.
To figure this out, I asked economists Larry Summers, Vito Tanzi and Arthur Laffer for their projections in this regard.
Former president of Harvard and 71e Secretary of the United States Treasury, Summers predicted the inflationary crisis and when asked if we have reached the peak of inflation, he replied: “We have probably reached it in the United States and this inflation will remain long with us. »
Former head of the International Monetary Fund’s fiscal affairs department and instigator of the Tanzi Effect, which focuses on the management of public finances in times of hyperinflation, Tanzi replied: “It’s hard to say. I feel like we may not be there yet. An economic adviser to Presidents Reagan and Trump and originator of the Laffer Curve which supports the idea that too much tax kills tax, Laffer explained that he fears we could hit double-digit inflation if our governments are not promoting pro-growth policies. Here, our outgoing finance minister, Éric Girard, said: “Inflation peaked, we hope, in June. »
Having myself declared in December 2020 to journalist Simon Cordeau that what worried me was inflation and that we did not talk about it enough, I note by looking at these varied and uncertain opinions that in reality, no one can confirm whether the peak of inflation is ahead or behind us. Consequently, our governments, at all levels, must act with extreme caution and take their mission of prevention very seriously.
Don’t submit to inflation
Yes, the crisis is global and yes, the rise in inflation is attributable to a number of factors beyond our control, but Quebec must not submit to inflation. Central bank monetary policy helps dampen demand, but current inflation is also a supply problem, and the work of increasing supply falls to domestic fiscal policies. I would even go so far as to say that the administrations which will emerge the least weakened from this crisis risk being those which will quickly take the bull by the horns by equipping themselves with preventive measures to contain the beast as much as possible.
We must work quickly on the development of a tax policy based on a plan for strategic investment in our goods and services, and let’s take advantage of this situation to accentuate our green shift.
In closing, I cannot help mentioning the famous tax cuts proposed by the Coalition avenir Québec, the Liberal Party of Quebec and the Conservative Party. Even as relief measures, the effectiveness of such reductions leaves something to be desired because, by their nature, they only benefit those who pay taxes and therefore do not relieve the often most vulnerable and affected third of the population. by inflation.
Also, we must not overlook the real risk that tax cuts will generate more inflation. In fact, I don’t think this is the time to lower taxes when Quebec’s debt in relation to its GDP is the third largest among the Canadian provinces and it risks becoming more expensive to repay, because interest rate increases. To use popular expression during the election campaign, of course many Quebecers need air today and must be relieved of inflation. But this air that we offer them should not put them at risk of dying of suffocation in some time.
One of the main governance challenges in times of inflation is to strike the difficult balance between relieving and preventing, through sometimes contradictory measures. To this end, beyond the short-term electoral calendar, we can only hope for the long-term collaboration of elected officials.