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Joe Oliver: Austerity straw man can't hide Trudeau’s plan for fiscal ruin

Trudeau hell-bent on irreversibly altering Canadian economy and society to achieve his big-government, socialist ideology

In advance of a spendthrift speech from the throne calling for dramatic change, the prime minister has set up a false choice between prosperity and “austerity.” Instead, what he is offering is profligacy bordering on lunacy, rather than what would make sense for the times: a modicum of fiscal responsibility, spending restraint and policies aimed at sustainable economic growth.

 If he persists, it is hard to see how the country will avoid a financial crisis. Word is that Prime Minister Justin Trudeau’s plan is so excessive and reckless that both blue Liberals and the bureaucracy, especially in the Department of Finance, are by turns afraid, contemptuous and demoralized.

Trudeau is using a pre-emptive straw man fallacy about “austerity” should the Conservatives dare suggest he temper his out-of-control spending spree to take account of economic reality, credit risk and intergenerational fairness. The primary political challenge for Conservative Leader Erin O’Toole will be to counter the coming big spend without raising the spectre of cutbacks and excessive restraint at a time when many Canadians are still hurting from a government-mandated business closure.

O’Toole promised a return to fiscal balance in about 10 years. A decade is arguably a long time to wait. Anything much shorter, however, and he would be vulnerable to the classic attack question: what are you going to cut? Answering that question immediately forfeits a block of voters who prefer receiving handouts to listening to lectures about fiscal rectitude. Anything longer than a decade, however, and the promise seems meaningless. The critical point is that O’Toole has established a target, indicated deficits would not last forever and demonstrated his intent ultimately to restore Canadian finances to good health. It contrasts well with Trudeau’s plan to borrow endlessly without acknowledging the inevitable burden on our children.

In 2015, the Liberals at least had a theoretical argument for “modest” deficit spending on infrastructure that could provide long-term benefits. Instead, much of the funding went to social programs that immediately became politically impossible to cancel, thereby entrenching structural deficits. The government’s earlier pretence has now been abandoned in favour of a new one: green projects will not only save humanity but also spur economic growth. Both rationalizations are demonstrably false and the result of ideological wish fulfillment — not to mention that purposely leaving other industries to languish, like oil and gas, will hobble growth.

In June, Fitch Ratings downgraded Canada bonds to AA+ from AAA, citing significant fiscal deterioration. Two weeks ago, it warned that a projected $343-billion deficit indicates a general government deficit above 21 per cent of GDP, five points more than the 16.1 per cent of GDP it estimated at the time of the downgrade. Meanwhile, general government debt is projected to rise above 120 per cent of GDP, significantly higher than the median of other AA-rated countries. Fitch warned: “Failure to place consolidated gross general government debt/GDP on a downward path over the medium term could lead to negative rating action.” That is chilling. Yet the prime minister and his new minister of finance, Chrystia Freeland, give every indication they intend to gallop in the opposite and ruinous direction.

With federal debt headed to $1.2 trillion this year and rising, a responsible government should be acutely concerned about a credit downgrade that would raise its interest costs and constrain its access to capital markets. Indeed, Parliamentary Budget Officer Yves Giroux said that unless deficits are reduced within a year or two, debt will become “unsustainable.”

Although Trudeau does not admit it, he is obviously captivated by a dark triad of radical initiatives — modern monetary theory (MMT), the Green New Deal (GND) and “The Great Reset.” (The label is inspired by psychology’s dark triad of personality traits: narcissism, machiavellianism and psychopathy, called dark because of their malevolent qualities. But I digress … sort of.)

MMT, a heterodox macroeconomic theory supported by U.S. Sen. Bernie Sanders, asserts that government can print all the money it wants without risking default. Regarding the danger of hyperinflation, not to worry: taxes can be imposed to limit purchasing power. GND, advocated by U.S. Rep. Alexandria Ocasio-Cortez, seeks to address climate change and income inequality by reaching net zero carbon emissions and eliminating virtually all fossil fuels in the next decade. It is unachievable but even the attempt would be disastrous. “The Great Reset” is more mainstream (by evolving progressive standards), and is supported by the World Economic Forum and Prince Charles. Nevertheless, it aims at a fundamental transformation of the economy and business.

Canadians are middle-of-the-road, commonsensical people who want to address injustice and poverty but above anything else are concerned about the welfare of their families. They are not radical, yet they find themselves governed by a scandal-ridden prime minister who no longer feigns moderation. He is hell-bent on irreversibly altering the Canadian economy and society to achieve his big-government, socialist ideology. The overarching political question is whether he can successfully bribe voters with their own money to buy into his radical vision.

Financial Post
Joe Oliver was minister of finance in 2014-15.

 Source: Financial Post
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