News analysis

As Canadians grapple with record gas prices and rising food prices, the Liberal government is under pressure from the Conservatives and the NDP to ease the cost of living crisis. But analysts say that neither the proposals of these parties nor the actions of the government are anything more than stopgap measures, which do not address the underlying problems. They add that tightening the government’s belt would help the Bank of Canada control runaway inflation.

Philip Cross, former chief economic analyst at Statistics Canada and Munk senior fellow at the Macdonald-Laurier Institute, says the opposition Conservative and NDP proposals may be popular, but won’t solve the inflation problem anymore. wide and can actually make it worse.

“What drives up gasoline prices is not the price of crude oil. It’s the lack of refining capacity. So anything that increases the demand for refined petroleum products will only make things worse, whether it’s gas [tax] holidays or putting more money in people’s pockets,” he told The Epoch Times.

What the Liberals say they have done is pass Bill C-8, which offers tax breaks to teachers, farmers and northerners, among other measures. It received Royal Assent on June 9. Finance Minister Chrystia Freeland also boasted Bill C-19legislation to implement many of the government’s 2022 budget commitments.

For instance, “[Bill C-19] put money back in the pockets of Canadians more regularly, moving Climate Action Incentive payments to quarterly payments,” she said on May 31st.

Whether it’s tax cuts or credits or paying people, Ian Lee, a business professor at Carleton University, suggests that if the federal government does anything more, it should provide targeted support based on income, for example by focusing on the lowest-earning 40% of Canadians.

“People are suffering. This calls for a targeted solution,” he told The Epoch Times.

However, Lee adds that inflation has worsened due to government spending when the economy is overheating and that the Conservative and NDP proposals are “band aid solutions” that do not solve the root problem.

“So maybe at the same time they [the feds] could say we are going to reduce spending in other areas for all income support programs because all the jobs have been recovered, ”said Lee.

Central banks have to deal with a number of factors, both domestic and international, that are pushing inflation away from the 2% target. The Bank of Canada and other central banks have repeatedly been wrong in their forecasts and expectations, but they are now taking decisive action to alleviate excess demand by rapidly raising interest rates.

“At the end of the day, it’s the Bank of Canada’s responsibility to control inflation. It’s not the government’s. It does not depend on their tax policy, [though] basically, fiscal policy can help at the margin,” Cross said.

“If we continue to send out $500 checks to everyone and reduce gas prices in Alberta to the degree that we continue to do, we are supposed to tell the Bank of Canada that it is up to you to do your job and reduce demand even further. ,” he added.

Lee says at least the Bank of Canada now realizes there is a problem and is doing something about it, while the government continues to spend and makes the central bank’s job harder.

“Our biggest problem right now is on the fiscal policy side. On the monetary policy side, they are finally getting on the right track, belatedly, a year late, yes, but at least they are getting on the right track,” did he declare.

Popular but flawed

“New Democrats have called on the Liberals to stop dithering and get $500 to $1,000 out of people’s pockets immediately by doubling the GST tax credit and increasing the Canada Child Benefit said NDP Leader Jagmeet Singh on June 10.

Interim Conservative Leader Candice Bergen instead pushed the government to suspend the GST on fuel and countered the NDP by saying more child benefits would not be enough to ease the cost of living crisis.

“We need to see a government that recognizes that people don’t need a government check. They need tax cuts; the best way to relieve Canadians is to lower their taxes,” she said on June 7.

According to Lee, another idea put forward by the NDP to help struggling Canadians is flawed.

“The NDP has called on the government to stop protecting corporate profits and redistributing money to working Canadians by expanding the excess profits tax on financial institutions to include big oil and gas companies and huge corporations making record profits. Singh said June 7.

Lee says this will only encourage investors to spend their money elsewhere and Canada will not get the capital it needs to strengthen and grow its economy.

“It’s a terrible idea because what we’re doing is we’re saying if you pass, we’re going to discriminate against you for passing,” he said.

“Companies are increasingly voting with their feet to take capital and invest it outside of Canada.

Rooted or not?

Deputy Governor of the Bank of Canada Paul Beaudry said in a June 2 speech that “international developments have pushed inflation the most over the past year”. He spoke of the global recovery from the pandemic that caused supply shortages in energy, electronics and consumer goods, and the war in Ukraine that drove prices even higher.

Beaudry’s point of view is similar to that of the Parliamentary Budget OfficerThe June 7 Inflation Monitor report, which stated that “supply or sector-specific issues are a key driver of high inflation.” The fiscal watchdog explained that if inflation were more widespread, it would be consistent with stronger aggregate demand as the main driver.

Beaudry said the Bank of Canada doesn’t believe inflation is entrenched yet.

“History shows that once high inflation becomes entrenched, it is difficult to roll it back without severely hampering the economy,” he said.

But Cross says inflation is about to take hold, after which it becomes very difficult to get it under control. He explained that inflation takes root when it is reflected in wages.

“This tightness that we see in labor markets is starting to show up in some measures of wages. … It’s not completely rooted.

Average hourly wage rose 3.9% annually for the year ending May, which Cross said is concerning. Canada added 40,000 jobs in May, unemployment hit a new record high of 5.1% and the number of vacant jobs exceeded one million.

“If we keep a cap on wages, there’s a chance that maybe early next year we might start to see inflation go down into the 4% or 5% range,” he said. said Cross.

Ontarians can expect some relief at the pumps from July 1 to December 31, when gasoline and fuel taxes will be reduced by 5.7 cents per liter and 5.3 cents per liter respectively.

The United States faces a similar problem, and the Internal Revenue Service increased standard mileage rates for the second half. These are used to calculate tax deductions for the use of a vehicle in a business.

“There’s just no reason to think our prices are going to go down anytime soon in the short term,” Cross said.