The Trudeau government isn’t using all the tools to protect Canadians from inflation, economist says
The economist Thomas Sowell once said that inflation is just a way to take people’s money without having to openly raise taxes. But you don’t have to tell that to Annette Murray and her husband Tom McGregor.
The Vancouver couple, aged 64 and 59, live on disability pensions adding up to $37,000 a year. Or they used to. With higher prices for food and medical supplies, the two are now relying on their savings to make ends meet.
“It keeps us awake at night, wondering how things are going to play out,” Murray told CBC’s The House. “Our savings, if things keep going this way, it’s not enough to keep us going into old age. And that’s a really scary prospect.”
The latest figures from Statistics Canada don’t offer any hope. Inflation rose last month to 6.8 per cent, the highest rate in 31 years. Prices for the most basic necessities are all rising: fresh vegetables are up 8.2 per cent, meat 10.1 per cent, bread 12.2 per cent.
Factor in the rising cost of fuel and, for many, making ends meet is like trying to push the positive ends of two magnets together.
Prime Minister Trudeau and Finance Minister Chrystia Freeland have been reminding people that the factors driving inflation are not entirely within their control. Supply chain backlogs and Russia’s invasion of Ukraine are the main culprits making life less and less affordable for Canadians — especially those on fixed incomes.
One expert said the government’s talking points on the causes of inflation are “a bit of a cop-out.”
“It’s a half-truth at best,” said Carleton University economist Vivek Dehejia during a panel discussion on this weekend’s edition of The House about what can be done to reduce the impact of inflation on Canadians.
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Dehejia said inflationary pressures were obvious long before the war in Ukraine, fed by a combination of record-low interest rates, pandemic stimulus spending and pent-up consumer demand.
“I think there was a certain amount of, I don’t know what the right word is … complacency, because inflation has been so low for decades,” he said. “We’d forgotten what it was. Now it’s back with a vengeance.”
But that doesn’t mean the Trudeau government lacks the tools to mitigate inflation’s impact.
Sohaib Shahid is the director of economic innovation at the Conference Board of Canada. He said that while he understands the federal government is in a difficult position, he thinks Freeland could have taken steps in his spring budget.
“There was no mention of providing Canadians with some respite from inflation in the form of targeted and temporary tax cuts, despite having more fiscal space than previously forecast,” he said.
Other countries, including the UK, have done so, he said. So has Alberta by removing the 13 per cent provincial sales tax from gasoline sales.
“That is where I would start. And next I would move to food,” he said. “And the reason I say that is because, again, I look at this primarily from a low-income versus high-income perspective. Low-income households spend 15 per cent of their total annual spending on food, whereas high-income households only spend half that.”
Affordability is becoming a liability for governments. And the federal opposition parties are seizing the opportunity to push for action. In the Commons this week, New Democrats and Conservatives took turns accusing the Liberals being out of touch with Canadians.
“The cost of food has gone up by 9.8 per cent and salaries have only gone up by 3.3 per cent,” NDP Leader Jagmeet Singh said during question period on Wednesday.
“All of this is to say workers are experiencing a massive pay cut. All the while, oil and gas companies are enjoying massive profits. The prime minister can do something instead of just standing by.”
It’s 1981 all over again: Albas
Conservative MP Dan Albas took up both food and gas prices the following day.
“The last time we saw the price of groceries jump 10 per cent was in 1981, when another big tax-and-spend Liberal prime minister was in office. What was his name again? It is like deja vu,” he thundered.
“Since the Liberal government obviously has no ideas about how it can improve gas prices, will it at least reconsider the Conservative proposal to exempt the GST on fuel? Will it at least do that?”
The prime minister and other cabinet ministers acknowledged Canadians are struggling but offered no promises of tax relief. Instead, they pointed to previous spending initiatives to help Canadians.
“We know that inflation is affecting the lives of Canadians and that is why our budget stepped up to the plate,” Tourism Minister Randy Boissonnault said in response to Albas.
“I know the Conservatives do not like it that we have been delivering for Canadians for seven years. I know it offends their sensibilities, but the reality is that in our budget we have dental care for Canadian families, a doubling of support through the first -time homebuyer’s credit, a multi-generational home renovation tax, and 500 bucks to those concerned with housing affordability.”
That’s not much comfort to Sarah Law, a 22-year-old graduate student in Vancouver who wonders if she can afford to live in her hometown much longer. She’s held multiple jobs through university to cover rent and groceries and is pinching pennies because she estimates she’s spending $500 more per month compared to a year ago because of inflation.
“I made a pact with myself that I would save $300 every single month. That is not possible anymore. I am constantly having to take money out of my savings despite working more,” she said.
“Not knowing how I’m going to be able to make ends meet is absolutely terrifying.”
And it’s not likely to get any better in the short term.
Sohaib Shahid said he doesn’t expect inflationary pressures to ease.
“I really don’t see any major factor happening or taking place in the coming few months that will push inflation down consistently,” he said. “I expect energy prices to continue trending upward at least until the end of the year, supply chain disruptions that are not going anywhere at least until next year. So things are pointing to higher inflation.”
Carleton’s Vivek Dehejia agrees — despite signs that the Bank of Canada plans to continue steadily increasing interest rates without slowing economic growth to a crawl, triggering stagflation.
“I think that we’re looking at higher inflation for the next year or two unless the Bank really ramps up rates,” he said. “And that’s, again, very, very tricky.”