Why Trudeau does not deserve to be re-elected

With the election only 74 days, I thought before the campaign starts I thought I would roll out my thoughts on the current government.  This is not an endorsement of any particular party, rather it is why I don’t believe Trudeau deserves another 4 years.  I will later write on what Scheer needs to do to secure my vote and what redlines I have and if he crosses any, I may go elsewhere.  While Canada has done well in the past four years, economically, it is important to remember governments at most only move the needle a fraction of a percent so year to year that is not much, but over a decade when compounded it can add up.  Otherwise reducing growth by 0.5% is barely noticeable in one year but over a decade it is.  Also a good government is one that can weather all parts of the economic cycle and I clearly do not believe Trudeau is the right person to get us through a recession or recovery.  His policies are way too similar to the BC NDP in the 90s although not quite as extreme, that of the Wynne government in Ontario, and many European governments in the past (although few today, it seems Europeans have learned the hard way).  If he is defeated in 2019, we can fix those much easier, whereas the longer he is in power, the longer it will take to dig us out of the hole.  Good news is this can be done such as it was in New Brunswick where Brian Gallant, who had similar policies, was ousted after one term and now Blaine Higgs is implementing policies to help get New Brunswick back on track.

Positives

I believe in this day and age of rabid partisanship, it makes little sense to just bash your opponent and always praise the party you support.  Just as a broken clock is right twice a day, so are bad governments occasionally; so to provide a neutral and fair look, I thought I would start off with things Trudeau has done right and then move on to what he has done wrong.

One was the UCCB (Universal child benefit) which started under Stephen Harper but was expanded under Trudeau and income based so lower income families would go more while higher income families who don’t need help would get less.  This has reduced child poverty and does help on the affordability part and even Scheer has promised to maintain this which is a good as I always believe when governments change; you should keep the good policies while ditch the bad ones.

Despite his general poor handling on foreign relations, I do believe that on our most important relationship; that with the United States he has done a good job.  With Trump being the polar opposite of Trudeau and being widely despised by Canadians, it would have been easy for him to just engage in American bashing, but instead he has done the best possible job I think given the difficult circumstances.  While relations with the United States aren’t great, they could be a lot worse with a narcissistic and unpredictable president.  Off course when talking about relations with other countries, a very different story.  EU is perhaps the other one he has handled well, but that was probably the easiest as people like Tusk, Juncker, Macron, and Merkel, at least on trade and foreign policy and general social policy largely see eye to eye and only differences are on domestic fiscal policy which are irrelevant to international relations.

Negatives

But after giving the positives, now is time for the negatives.  While Trudeau decries populism, a lot of his bad policies are just that.  Policies that are popular for the majority who have limited economic knowledge but ultimately bad for the country in the long-run.

One of the most bone headed policies of his was to reverse Harper’s decision to gradually increase the OAS qualifying age to 67 from 65.  With an aging population and longer life expectancy it makes perfect sense to raise the retirement age.  Life expectancies have risen by 10 years since when first implemented while ratio of working population to retirees has declined form 7 to 1, to current 4 to 1 and will fall to 2 to 1 by 2030.  The cost of this is $10.8 billion which just for comparison is more than half the deficit, 2/3 the money needed to fund a universal pharmacare program, and enough to cut middle income tax rates by 5%.  Almost all actuaries and experts have criticized this and it puts us offside with the vast majority of developed countries who are raising theirs.  In fact the only other two countries to follow this move were Poland and Italy and both were right wing populist governments.  Also in order to encourage economic growth, we need a larger labour force, so even if affordable, a smaller workforce will stunt our economic growth.  Now I’ve heard many of the criticisms and some fair but still not valid.  Some claim those in labour intensive industries cannot work past 65 and I agree, but better to make an exception to let those in physically demanding jobs retire at 65 while require those in office jobs or non-physical to work longer.  Belgium, France, and Finland do this so we can too.  Other is poor tend to have lower life expectancies, but that will be the case no matter what the age is set at and no matter where you set it, some will die before retirement and some will live only a few years after.  What you want to avoid as a large chunk of the population living 25 years beyond and that used to be rare but is quite common today.  Some see 65 as a milestone, but I believe policies should be based on evidence and just because you always did something a certain way doesn’t mean you always do, especially not when circumstances change.

Another populist one, but questionable is Trudeau’s decision to hike taxes on the top 1%.  I am not against tax hikes on the rich per se, rather I think instead of saying rich should pay more or pay less, we should figure out what the optimal rate is and then work from there.  Back in 2010, top marginal rates averaged when combining provincial and federal taxes around 45% give or take a few percentage points depending on province.  This was quite competitive with OECD average and also high enough to raise sufficient revenue, but not so high to act as a disincentive.  Ever since the Occupy Wall Street, many politicians have tried to jump on the soak the rich bandwagon thus today our top rates are over 50% in 7 out of 10 provinces and in the two largest provinces, are now the 7th highest in the OECD out of 34 countries and only a few points below the highest, Sweden (who is the highest).  I believe there are a few problems here: people with money are highly mobile and when tax rates are too high you get a brain drain.  Not all or even most will move, but even as little as 2% moving has a negative impact.  I saw this first hand in the 90s when top rate in BC was 54% while in Alberta it was 45% and many wealthy left BC for Alberta.  Also there is loss opportunity as how many graduates in highly skilled jobs like doctors or potential immigrants, say your Indian doctor or Chinese software engineer choose to go elsewhere?  We need to make Canada a place where high skilled workers stay while high skilled workers elsewhere have as their top destination to move to.  The Liberals under Chretien and Martin understood this but Trudeau doesn’t.  Also as per previous paragraph, we need to encourage people to stay in the labour force longer and work longer hours yet higher marginal tax rates, especially if over 50% acts as a disincentive to both, leading to some retiring earlier or working only regular hours.  All of us get a certain amount of utility from earning money but also leisure thus most of us don’t need a lot to work 4 hours, but most of us would require a lot of money to work 12 hours.  By taxing at higher rate this makes leisure over work preferable for some.  The good news is the government only gained $1.5 billion here and with the average budget growth of $15 billion per year, never mind many tax credits and loopholes that serve little purpose, a tax reform could easily drop this back to previous levels without the public noticing.  Its not a vote winning issue and I wouldn’t advise Tories to run on this, but worth doing.  Perhaps calling a commission on tax reform as Kenney promises in 2 years or Manitoba Liberals are promising is best way to deal with this.  And for those saying it would prevent a middle class tax cut, as mentioned, the middle class tax cut is still easily affordable so dropping the rate back doesn’t have to entail either spending cuts, bigger deficits, or tax hikes on lower and middle income earners.

Whether we like it or not, the resource sector is an important component of our economy and governments should be putting up as few barriers as possible to allow our economy to flourish.  While Trudeau was right to approve the Transmountain pipeline, spending billions to buy it and still no sign of being built is poor handling as well as blocking Northern Gateway and Energy East are big mistakes.  I believe when one province prospers we all benefit, so blocking the pipeline as well as C-42 and C-69 which make building future ones difficult simply harms our growth.  I get people care strongly about climate change, but transition to cleaner energy will take time and not happen overnight and also it is demand not supply that drives energy production.  So as long as some people want oil, either we will supply it or someone else will.  A revenue neutral carbon tax as BC had up until 2017 along with being pro-pipeline is the best way to go.  Yes Trudeau is better than May or Singh here, but still tried to play both sides of the fence when he should have taken a clear stand.  Also anger in Alberta towards federal government is at all time high and I fear if he wins again, an Alberta separatist movement will gain momentum.  Probably not enough to succeed, but just having such movement even if it fails is bad for the country and economy.

Another bad move is CPP increases.  While I realize this was done more to placate Kathleen Wynne who would create an Ontario one and the increase would be much bigger hurting Ontario’s economy, they could have like Harper said no to it.  I agree people not saving enough for retirement is an issue, but this is the wrong way to go about it.  For those close to retirement, it just means higher premiums with little to no benefit.  For younger workers who it is supposed to help, it means less disposable income thus hurting the economy and worse of all it wipes out the middle class tax cut while those below 45K who got no tax cut are now paying more.  Some claim CPP is not a tax, but the reality is any forced payment to the government regardless of how it is used is considered a tax by most accountants and the impacts in terms of less disposable income and deadweight loss are the same economically.  Also employers have to pay their share and while large firms can easily afford this, small businesses which are the backbone of the economy cannot.  Liberals tried to offset this by cutting small business rates, but actually that is the wrong way as we want to encourage our small businesses to grow into larger not stay small.  A better solution is if OAS raise was kept, 67 would become the new norm for retirement so it would be easier to get provinces onside with higher CPP age.  My view is starting in 2025, the age range should shift from minimum of 61 to maximum of 71 with payouts still the same at each given age.  Every decade, it would go up one year until 2065 when it would be 65 minimum to 75 maximum.  This kills two birds with one stone, more secure retirement without reducing present day disposable income.

Another issue is virtue signaling and identity politics.  I am all for helping traditionally disadvantaged but I think rather than find ways to bring people together, Trudeau has tried to play the oppressed vs. oppressor and just alienated a whole bunch of people.  Ultimately an ideal Canada is where we judge everyone by their individual character not what group they are a member of and trying to do things on quotas is a band aid solution but doesn’t help achieve the ultimate goal of more a tolerant and inclusive society.  You don’t bring people up by bringing others down.  As John Ivison’s new book hints, Trudeau very much likes to see himself as the savior of the disadvantaged and I think he gets a little too caught up in government trying to use its authority to create his ideal world rather than working with what works.  I also think on international relations, trying to bring up the latest social justice causes in trade deals is not appropriate and just angers allies.  Like it or not, very few countries are as socially progressive as we are and if we demand others be like us, we will have few friends which will hurt us economically.  Instead it is best to lead by example and over time others will follow.  We were on the first countries to legalize gay marriage, but we didn’t go around insisting others did, we instead lead and since then many others have followed and I have every reason many more will follow in years to come.

While this policy has gotten little public attention and may never come to fruition, it is quite worrisome if it does.  The federal government has stated that starting April 1, 2020, private diagnostic clinics which charge patients fees will result in fines under the Canada Health Act.  Quebec and Saskatchewan governments have already said they will not comply and I suspect Alberta will be the same.  BC has tried to comply, but has already had to push the date back twice and will have trouble meeting the deadline.  Whether one agrees or not with these clinics, trying to end a practice that has gone on for over a quarter of century seems silly.  More importantly there is no evidence the existence of these clinics is unduly harming the public health care system in which case it would be reasonable to shut them down.  The Canada Health Act is vague enough that as long as these are stand alone private facilities and get zero dollars from the provincial governments (so no cross subsidization), they can be allowed.  The danger is either they get shut down leading to longer wait times, or governments bring them into the public system and without the federal government providing the money, this seems unfair to the provinces.  If they want these ended, the feds need to pay the full cost to bring these into the public system, not put the burden on the provinces.  Likewise we should encourage innovation; for example Saskatchewan’s idea of for every private paid scan, there must be one free of charge seems like a win-win as no cost to taxpayers and benefits everyone, not just the rich.  But unfortunately federal government is too caught up in their dogma of everyone being equal as opposed to getting the best outcomes.

Finally last by not least, although I am sure later I may think of something else, which I may add in a future blog; is the deficit.  Most economist rightly claim the deficit is small and nothing to worry about.  The problem here is while the federal deficit is not huge, our total government debt to GDP when you combine all levels of government is one of the highest in the world and is only lower than most G7 countries as those are the worst offenders.  Likewise deficit is only sustainable so long as there is no recession and interest rates stay low.  The moment one or both change, the deficit won’t be.  Keynesian economics says you run deficits when the economy is operating below capacity, not when running on all four cylinders.  If Trudeau loses, we can balance the budget easily in a few years but simply keeping spending increases below inflation + economic growth + population growth.  But if he gets in, I am afraid we will have another recession before 2023 and higher interest rates meaning we won’t be able to balance it without either tax hikes or spending cuts.  Austerity is never pleasant, but solution is not to avoid it at all cost as Trudeau is trying to do; the solution is to spend prudently so you don’t need to do it and if you do need to, you take action not put it off longer.

These are all the major policies I can think of off the top of my head why Trudeau shouldn’t be re-elected.  More importantly unlike a lot of his critics who are right wing populist and make silly ones like Trudeau is selling out to the Globalists, or wants to bring Sharia Law to Canada and all the other silly ones you hear on twitter, these are serious economic ones that aren’t easily discussed in 280 character tweets, but are important to the future of our country.

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