Is Trudeau’s inflation relief targeted enough?

With the House of Commons back in session, politicians are zeroing in on inflation and the affordability crisis facing many Canadians across the country. Prime Minister Justin Trudeau’s Liberal government has proposed new legislation to provide inflation relief for low-income Canadians by temporarily hiking GST credits and providing payments for those struggling to pay rent. It is also moving forward on developing a national dental care program, a key part of its supply-and-confidence agreement with the NDP.

On this episode of Editor’s Edition, the Public Policy Forum’s Sean Speer and Yahoo Finance Canada’s Alicja Siekierska discuss the government’s plan to provide inflation relief for Canadians and whether it will contribute to the issue itself.

Video Transcript

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SEAN SPEER: High inflation is good for one entity in our society, and that is the government and government revenues. So during the pandemic, a lot of Canadian governments found themselves in deep deficits. Their public finances were painted in red.

We're actually seeing pretty remarkable progress on deficit reduction at the federal level and amongst various provinces. And a lot of the work is being done by inflation pushing up government revenue. And so it seems to me that, as long as governments were going to laud the progress that they were making on deficit reduction, which is mostly a result of these inflationary pressures, there was going to be growing pressure, on the other hand, to return some of those new revenues back to Canadians in the form of measures that would try to mitigate the impacts of inflation.

In that sense, I think the package that the government's put forward represents something of a reasonable political economy compromise. The GST credit in particular will provide targeted support for those low-income households that are facing some of the pressures that we've already talked about, including food prices.

I guess the second point I would make though, the political one, is I don't think this is going to stop new conservative leader Pierre Polievre from continuing to beat the drum on these issues as parliament gets set to return this week. And one area in particular I would draw viewers' attention is the subject of the rising carbon tax.

Viewers will probably know that we have a carbon tax in Canada that is going up to $10 per ton each and every year. There were calls in January of this year for the government to suspend those increases because of a combination of rising inflation and the economic uncertainty of the pandemic. The government took a pass at that point.

But as we approach the end of this year, I think there'll be renewed calls for the government to suspend the scheduled increase in the carbon tax because, as you said earlier, Alicja, we've seen a pretty significant increase in gas prices through these inflationary forces alone, let alone policy efforts on the part of the government to effectively artificially raise prices in the name of our broader climate goals.

So I guess that's a very long way of saying, I think so far, the government has taken some reasonable steps. But I think this issue will loom large in the new parliament. And in particular, the subject of carbon taxes, I think, will be a line of attack that you hear on the part of Pierre Polievre and the Conservative opposition.

ALICJA SIEKIERSKA: Under the measures that have been introduced so far, economists have been warning about potentially adding pressure to inflation through different kind of initiatives and policies to help with affordability for Canadians and to deal with these rising costs. Do you think that these measures are targeted enough that they won't necessarily contribute to inflation or that it will help the people that need it most at this time?

SEAN SPEER: It's a great question. Viewers who'll be following these issues will know that there are kind of competing views on that question. Derek Holt at Scotiabank, for instance, has made the case that the introduction of these measures will actually require the Bank of Canada to have to raise interest rates even higher in order to deal with the inflation problem.

I should say I was on CBC's "The House" over the weekend with University of Calgary economist Trevor Tombe, who made the case that he thought that these measures are sufficiently targeted, particularly the GST/HST credit, such that they should provide some relief to households without having a major impact on inflation.

I guess the outcome is yet to be seen. But I'd come back to my earlier point, which is, given rising government revenues resulting from these high sustained rates of inflation, I think the government was in something of a lose-lose position. It had to return those inflationary-driven dollars back to taxpayers in some way, shape, or form or, I think, face significant criticism from the opposition but also, I think, from Canadians who would rightly see something of a cognitive dissonance between heralding deficit reduction on one hand and watching Canadians struggle under inflation on the other hand.

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