Trudeau government not using all tools to protect Canadians from inflation, economist says

Economist Thomas Sowell once said that inflation is just a way to take people’s money without having to overtly raise taxes. But you don’t have to tell Annette Murray and her husband Tom McGregor.

The Vancouver couple, 64 and 59, live on disability pensions of $37,000 a year. Or they did. 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 turn out,” Murray told CBC. The House. “Our savings, if things continue like this, it’s not enough to allow us to grow old. And that’s a really scary prospect.”

The latest figures from Statistics Canada offer no hope. Inflation rose last month to 6.8%, the highest rate in 31 years. The prices of basic necessities are all up: fresh vegetables are up by 8.2%, meat by 10.1%, bread by 12.2%.

Factor in the rising cost of fuel, and for many, making ends meet is like trying to bring the positive ends of two magnets together.

Prime Minister Trudeau and Finance Minister Chrystia Freeland have reminded people that the factors driving inflation are not entirely within their control. Supply chain backlogs and Russia’s invasion of Ukraine are major culprits that are making life increasingly unaffordable for Canadians, especially those on fixed incomes.

An expert has said the government’s talking points about the causes of inflation are “a bit of a loophole”.

“It’s a half-truth at best,” Carleton University economist Vivek Dehejia said during a panel discussion on this weekend’s edition of The House on what can be done to reduce the impact of inflation on Canadians.

CBC News: The House11:02Rising inflation increases unease

Conference Board of Canada’s Sohaib Shahid and Carleton University’s Vivek Dehejia discuss what more government can do to soften the financial blow of rising inflation.

The government has been widely warned of the risk of inflation: an economist

Dehejia said inflationary pressures were evident long before the war in Ukraine, fueled by a combination of historically 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 forgot what it was. Now it’s back with a vengeance.”

But that doesn’t mean the Trudeau government doesn’t have the tools to mitigate the impact of inflation.

Sohaib Shahid is 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 action in its spring budget.

“There has been no talk of giving Canadians a reprieve from inflation in the form of targeted, temporary tax cuts, despite more fiscal room to maneuver than expected,” he said.

Alberta recently lifted the gasoline sales tax to ease inflationary pressures on households. (Kirk Fraser/CBC)

Other countries, including the UK, have done so, he said. Alberta followed suit by removing the 13% provincial sales tax on gasoline sales.

“That’s where I would start. And then I would move on to food,” he said. “And the reason I say that is because, again, I’m looking at this primarily from a low-income versus high-income perspective. Low-income households spend 15% of their total annual expenditure on food, while high-income households only spend half.”

Affordability becomes a liability for governments. And 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 of being out of touch with Canadians.

“The cost of food is up 9.8% and wages are up only 3.3%,” NDP Leader Jagmeet Singh said during Question Period on Wednesday.

“All this to say that workers are taking a massive pay cut. Meanwhile, oil and gas companies are making huge profits. Prime Minister can do something instead of just standing there.”

It’s 1981 again: Albas

Tory MP Dan Albas addressed food and petrol prices the following day.

“The last time we saw the price of groceries jump 10% was in 1981, when another prominent Liberal tax-spending prime minister was in power. What was his name? Already? It’s like déjà vu,” he thundered.

“Since the Liberal government clearly has no idea how it can improve gas prices, will it at least reconsider the Conservative proposal to exempt the GST on fuel? Will he at least?

Conservative MP Dan Albas is keeping the pressure on the Trudeau government over inflation. (Adrian Wyld/The Canadian Press)

The Prime Minister and other cabinet ministers have acknowledged that Canadians are struggling, but have offered no promise of tax relief. Instead, they highlighted past spending initiatives to help Canadians.

“We know inflation affects the lives of Canadians and that’s why our budget has risen to match,” Tourism Minister Randy Boissonnault said in response to Albas.

“I know the Conservatives don’t like that we’ve been offering the Canadiens 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 first-time support – the homebuyer’s credit, a tax multi-generation home renovation and $500 for those concerned about housing affordability. »

“Absolutely terrifying”

That’s not very comforting for Sarah Law, a 22-year-old graduate student in Vancouver who wonders if she can afford to live longer in her hometown. She worked multiple jobs while in college to cover rent and groceries and she’s raking in the pennies because she estimates she’s spending $500 more per month than she did a year ago due to inflation. .

“I made a pact with myself that I would save $300 every month. It’s no longer possible. I constantly have to withdraw money from my savings despite the fact that I work more,” he said. she declared.

“Not knowing how I’m going to be able to make ends meet is absolutely terrifying.”

And it is unlikely to improve in the short term.

Sohaib Shahid said he did not expect inflationary pressures to subside.

“I really don’t see any major factors occurring or occurring in the next few months that will bring inflation down steadily,” he said. “I expect energy prices to continue their upward trend at least until the end of the year, supply chain disruptions that will go nowhere at least until see you 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 raising interest rates without slowing economic growth, which would trigger stagflation.

“I think we’re looking at higher inflation for the next year or two unless the Bank really raises rates,” he said. “And that is, again, very, very tricky.”