Canada’s ‘Tax the Rich’ Plan Leaves Huge Debt Risk Intact

“Nothing related to the cost of the pandemic … will be reimbursed by the current generation. And that is very bold and risky,” said Don Drummond.

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OTTAWA – Prime Minister Justin Trudeau’s new government is set to impose higher taxes on Canadians, which will help fund some campaign promises, but are not broad enough to start paying off the country’s record debt levels, leaving Canada vulnerable to the next economic crisis. analysts say.

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This could be a risky strategy for the country, which racked up new debt at a faster rate than any of its Group of Seven peers during the pandemic. High indebtedness could limit Canada’s ability to manage long-term challenges that require massive government funding, such as the transition from a fossil fuel-dependent to a green economy.

A much higher debt-to-GDP ratio after the pandemic means that Canada has much less leeway to respond to the next crisis, be it economic, trade, climate or health-related, analysts say.

Essentially, Canada’s large debt burden “does not leave significant fiscal space to offset major new shocks,” said Kelli Bissett-Tom, director of sovereign ratings for the Americas at rating agency Fitch Ratings.

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Fitch has already stripped Canada of a triple A credit rating, but S&P Global Ratings and Moody’s Investors Service still give Canadian debt the highest rating.

Before his re-election last month, Canada’s liberals pledged $ 78 billion ($ 63.1 billion) in new spending over five years, about 4% of gross domestic product, partially offset by $ 25.5 billion. in new tax revenue during the same period, mainly directed at taxes. evasion, wealthy people, big banks and insurance companies.

The idea is to tap into those who best resisted the pandemic to pay for new expenses on everything from mental health care to school lunch programs. But those taxes won’t help pay off Canada’s record $ 1 trillion national debt, nor will they be enough to balance the budget.

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This becomes risky because at some point the cost of maintaining that debt will rise, and a future government may need to cut services or raise taxes even further to address that burden, some economists warn.

“Nothing related to the cost of the pandemic… will be reimbursed by the current generation. And that’s very bold and risky, ”said Don Drummond, a Stauffer-Dunning fellow at Queen’s University.

Canada is not alone in looking to tax the rich to pay for the expense of the COVID-19 era. But countries like the UK are making an effort to start paying off debt as part of their new fiscal plans, and Western European nations are signaling that public debt levels will not rise forever.

Canada’s gross debt-to-GDP ratio rose 36% last year to 118% amid massive transfers of government aid to individuals and businesses, by far the largest increase from the G7 group of rich nations.

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That ratio, which includes all provincial and federal government debt, will drop to 113% by 2022, based on projections for economic growth rather than debt repayment.

Reducing Canada’s debt as part of the economy over time creates some kind of fiscal discipline, but that “fiscal anchor is bound to break in tough times,” economists at BMO Capital Markets said in a post-election note.

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The Trudeau Liberals did not win a majority in the Sept. 20 election and continue to rely on the New Left Democrats (NDP) to pass the legislation. That party could pressure the Liberals to spend more in exchange for their support.

Liberals have pledged to increase the corporate tax rate for large banks and insurers, as well as to introduce an additional payment from those same companies to help pay for the economic recovery. The government also plans to impose a minimum tax rule for people with higher incomes.

Trudeau’s liberals will need the support of at least one other party to pass any new legislation, such as changes to the tax laws. The NDP favors tax increases on big business and the very wealthy.

“We had a lot of fiscal space, a lot. And we use it a lot in the pandemic, ”said Dominique Lapointe, senior economist at Laurentian Bank, referring to the government’s record stimulus to support the economy.

“People are now worried because we use that fiscal space and we keep introducing new measures.”

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Reference-torontosun.com

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