Budget Day

The budget will balance itself.

Er, well, fuhgeddaboudit. Eight years on, you can forever bury that promise, made by Justin Trudeau as he took over the reins from Stephen Harper.

The 2023 budget, delivered today by our non-financial Finance Minister kisses the notion of balanced budgets goodbye. Spending is going up. A lot. An extra $43 billion over the next six years, including $2.5 billion being sent to families to help them buy groceries. How that helps bring down inflation is an open guess. Plus dentalcare. And add in $21 billion for ‘clean tech’ initiatives over five years, rising to a staggering $80 billion by 2034.

Ottawa appears to be tossing in the towel on restraint, girding its loins for a recession, and telling people that we’ll be wallowing in deficits (and more annual debt) until at least the time your ten-year-old daughter heads off to college. The shortfall this year will be $43 billion. Then forty the year after that. Then thirty-five and after that then, well, you get the picture.

Deficits forever. And higher interest rates are playing a big role.

To service our bloating debt took $25 billion last year. That number, Chrystia says, will grow to be $50 billion. That’s $50,000,000,000 in interest, or $137 million daily. Pffft. Gone. To bondholders.

One piece of good news for the docs and CEOs among us is that the marginal tax rate on high-income people did not swell as anticipated. But the alternative minimum tax did shoot higher, while dividend income will be more harshly treated at the institution level. Plus the feds are raking off a lot of fat from the banks, whose shares and mortgage portfolios have been under downward pressure.

Still, the math sucks. Far too little being collected in taxes to finance spending. Or, rather, far too much spending for the nation to afford. Either way, this may not end well. Let’s pray any recession is short and shallow.

What’s the state of the nation?

When T2 came to power in 2015, eight years ago, the nation debt was a worrisome $612 billion. The debt-to-GDP ratio was 31%. That year Stephen Harper’s Tories brought in a budget with a surplus of $1.4 billion. ‘Surplus.’ When was the last time you heard that word?

So now the national debt is $1.213 trillion. It has doubled during the Trudeau years. The debt rises by $144 million per day, as spending outstrips revenues. The combined federal and provincial debt is $2.1 trillion. That’s slightly larger than the size of the entire national economy.

When will the budget ever be balanced – the day on which revenues equal expenditures?

In theory, maybe 15 years. In reality, maybe never. The deficit for the next year was projected to be in the thirty-billion range, which would increase if we have an economic slowdown with smaller tax revenues and increased social support spending. Now we have blown right past that dismal milepost.

Also it’s worth recalling the current Liberal regime remains in power thanks to Jagmeet & the Dippers, who have pledged their support until 2025. In return, they want a fully-funded pharmacare scheme, plus dentalcare, more direct support for families, a free school lunch program and (of course) higher taxes on corporations. So far the Trudeau cabinet has acquiesced to Jag’s agenda and as a result avoided the electorate.

What happens if that recession does arrive?

Then unemployment goes up, income taxes fall and corporate levies are seriously reduced along with profitability. In other words, increasing federal spending while the GDP shrinks is Covid déjà vu. It was profligate cash-spreading that gave Canada its worst-ever budget shortfall and pushed the national debt over teg trillion mark.

Now to be clear, nobody cares about this stuff. Trudeau know it. Chrystia, too. This is an era of Big Govy. Young voters seem to want more government in their lives, not less. It’s also a time of wealth and income inequality, when a whole generation fells screwed over in terms of housing affordability, believe Boomers sucked up more than their share of national capital, and when poor sops like Galen Weston are pilloried for nothing.

So, budget 2023 is more of the same. What T2 promised eight years ago is what he’s delivered. ‘The budget will balance itself,’ because he can’t.

About the picture: “I am a big fan of your blog, never miss a day.  Your advice, sarcasm and humour is much appreciated,” writes Robin, on Vancouver Island. “You have featured my canine and feline friends in the past.  I met my new furry king penguin friends Polly, Peanut and Piper on my recent trip to Antarctica.  They wondered if you might have a vacant blog spot to feature them one day ?  After all, life is better with penguins!!”

Robin Hoodiness

One more sleep ’til B-day.

The feds are between a pointy thing and a sharp stick. On one hand they must ‘do something’ about inflation and to stop the food riots. On the other they can’t throw money around because it’ll add to inflation. Meanwhile higher interest rates are making our trillion dollar+ national debt a huge burden. And there may be a recession coming.

If the Libs get parsimonious and fiscally responsible, Jag & the Dippers may walk away from their agreement and trigger an election. If Trudeau decides to curry favour with the masses by sending them grocery money while whacking the successful, Pepe’s head will explode.

This is a balancing act that our non-financial Finance Minister, Chrystia, will wear politically. At this point she’s the Liberal heir apparent should her boss (wisely) decide to step down to run the UN or save the planet prior to the next election. It’s a tough moment. Inflation is sticky. Real estate unattainable. The economy is losing altitude. And all this bank-crisis and recession talk in the media (plus an ugly war and Trump in Waco) has the rabble on edge.

Sheesh, look at the comments on this pathetic blog. Folks are downright morose. Negative. As if we are on the cusp of days which will be far worse.

Time will show us. But there’s a surfeit of drama, methinks. Unless, of course, Chrystia does the wrong things.

What should we expect tomorrow?

Looks like there will, indeed, be cash-for-groceries announced – on the heels of the most costly child-care program ever, plus dentalcare and billions more for everything from new fighter jets to health care transfers and indigenous programs. Jag is also demanding pharmacare this year, plus free school lunches and a GST rebate. It’s hard to see how record levels of spending are not adding to inflationary pressures. But, hey, “We’re the government – we are here to help you.”

Said Chrystia: “In the weeks to come, for those Canadians who feel the bite of rising prices the most acutely, for our most vulnerable friends and neighbours, our government will deliver additional, targeted inflation relief.”

The environment will get billions more (it’s called ‘clean energy transition’). Carbon taxes click in on Saturday, by the way. And rumour has it that marginal tax rates are about to rise. If you make a lot of money, might as well just roll over, expose your vulnerable nether regions and mutter, ‘Take me…’

The top marginal tax rate – now 54% in most provinces – may rise to 58% or a bit higher, according to sources. So, Canada would officially be sucking off nearly six of every ten dollars earned by people who make in excess of $216,000. Seems like a dumb idea in a country which is currently starved for MDs, surgeons, anaesthesiologists and other health care specialists – who are constantly being recruited by US hospitals.

Of course, it could get worse if T2 decides to ape some of the ideas his bud, Joe Biden, recently sent to Congress in his budget. The American president apparently seeks to be the most efficient vacuumer of tax dollars in US history.

Joe has asked that capital gains taxes be effectively doubled, from 20% to 39.6%, for people with seven-figure incomes, plus higher medical levies. The tax on investment income could rise to 45%. He would bring in inheritance taxes for all, raise the top fed tax rate for people earning over $400,000, eliminate the Trump corporate tax cut, quadruple taxes on stock buybacks and impose a limit on how much wealthy people could hold in a Roth IRA – which is the American equivalent of our TFSA.

Now, most of this will be shot down by Republicans because, unlike in Canada, Americans have a functioning democracy. (This is not Trudeau’s fault but rather the biggest failing of our Parliamentary system. Harper was equally dictatorial.)

Well, you get the drift on where left-of-centre policy is taking North America. More spending. More taxes. Lotsa Robin Hoodiness. Every extra dollar the feds pump into households to help them cope with inflation just ends up fueling more of it. Every extra dollar sucked out of the hands of business owners, professionals, entrepreneurs and people who are succeeding in life makes them ponder alternatives.

Wealth and income inequality are facts of human life – exacerbated now by a gen that seems wedded to WFH, eschewing career or ambition in favour of work/life balance. So maybe it’s an inevitable slide into UBI sameness that the current political leadership wants. Maybe that’s what Canadians want. Remember that poll which found a majority of the young favour socialism?

We could be a pace closer tomorrow. Courage.

About the picture: “Love your blog. I’m a regular reader,” writes Michelle. “This is Winnie. Checking her portfolio. She’s a 6 year old schnauzer mix.”