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March 22, 2016 | B-Day

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

Time to compare the Trudeau hype to the reality. Not that it matters to many of the Libs’ enthusiastic, moisty supporters or those who voted for T2 because he wasn’t Harper. This budget won’t change their minds much. But the crustaceans among us are watching with beady eyes.

And let’s remember where most people are at. Being house-lusty and debt-hungry hasn’t stopped them from worrying. A pre-budget poll found 33% think the economy will get worse, and just 24% feel the opposite. Almost seven in 10 say they fret over their personal finances. With record borrowing and stagnant incomes, no wonder. BTW, the most negative? That’s the 18-to-34 crowd. They all voted for Robin Hood.

Here’s today’s scorecard:

What they promised on national finances:
In the election we got three commitments: Libs would run a “modest” annual shortfall, spending about $10 billion a year more than they took in for two years. Despite that, T2 promised any deficit would be wiped out before the next election (2019). And, finally, the ratio of the federal debt to the size of the economy shrink as steadily as Adele’s popularity or the longevity of the average Kia.

In their own words:

“With the Liberal plan, the federal government will have a modest short-term deficit of less than $10 billion in each of the next two fiscal years – less than half the average Harper deficit of over $20 billion per year. After the next two fiscal years, the deficit will decline and our investment plan will return Canada to a balanced budget in 2019/20. Combining fiscal prudence with investments in economic growth, we will end the Harper legacy of chronic deficits and reduce Canada’s federal debt-to-GDP ratio each year.”

(For context, the last evil guys – Harper Cons – had a budget surplus of $14 billion in 2006, and a more-or-less balanced budget in 2015. During the intervening financial crisis the shortfall swelled to $55 billion in 2010, dropping to $5 billion by 2013. This was due to a plunge in tax revenues and an increase in spending under the ‘economic action plan.’ In all, Harper added $170 billion to the debt over eight years.)

What the Liberals just delivered:
Not good. The hole this year, when there’s no global credit crisis and economic growth is slow but positive, will be almost $30 billion. It’s three times the amount promised five months ago, and means the goal of a balanced budget within three years is smoked. In fact four years from now the red ink will still be at $14 billion, with $100 billion in new debt. Yikes. This comes despite a host of new tax measures, including creation of a new eat-the-rich tax bracket, a serious nipping of TFSAs and diddling with investment tax rates.

What they promised on more spending.
The campaign promise was another $10 billion, half of that for infrastructure, $2.5 billion for jobs training and the rest on everything from arts to indigenous peoples, veterans, immigration and the environment.

What the Liberals just delivered:
The big thing is child care. The Lib’s Canada Child Benefit increases kid spending by more than $2 billion, so Ottawa is now sending a whopping $22 billion a year to families. The benefit is income-tested, which means higher-income earners who contribute disproportionately will receive no benefit. This is the new “equality” you’ve heard so much about.

Of course, there’s infrastructure spending – the equivalent of the old “Canada’s action plan”, but way more, at $120 billion over a decade – plus more money for aboriginal communities, Alberta, jobless benefits, the CBC, a clutch of other programs including a billion more a year for the poorest wrinklies. Plus the age for OAS drops back to 65 – something that will cost $11 billion a year extra by 2030.  Let’s hope this economy starts firing on more cylinders. If not, your grandchildren will be muttering something about, “what the…?”

What they promised about taxing.
We knew the TFSA would be gutted, with the annual contribution cut by half. We knew about the tax on the successful, with creation of a brand new bracket to drain other $2.8 billion from the already-highest-taxed citizens. We knew about the slight decline in middle-class taxes with a cut averaging $8 per week per family for nine million taxpayers. We knew the Libs had a hate-on for stock options and considered many small businesses as tax-deferral or avoidance vehicles for wealthier people. Like doctors. And we knew the Trudeauites would ditch income-splitting within families, in the belief anyone who can afford a stay-at-home parent must be rich. But much of that will apparently be left form the next budget.

What the Liberals just delivered:
Besides the expected, a disappointment for small businesses, whose tax rate reduction to 9% isn’t happening any more. But the rumours were wrong. No increase in capital gains taxes. No all-out assault on small businesses or owners who avoid taxes through income-splitting or taking dividends. Fortunately enough small-c cons still shuffle around the Department of Finance to make the point that this is not the time to be penalizing people for starting or running businesses. And if you have corporate-class mutual funds well, sorry. Taxes ahoy.

The GreaterFool bottom line:
The budget will be deemed a big success by the T2 nation. Unlike some of the fossils who read this pathetic blog, they don’t care about red ink. They live with debt, ignore it and do not fear it. They see income inequality as a social crime and feel just fine about penalizing success. Big taxes are okay if accompanied by big spending. Deficits will handle themselves. If the guys in power are perceived to share common values, they have carte blanche. Government, in this context, is seen as the solution, not the problem. Every day, more personal control and responsibility is surrendered to the state.

These are interesting times. They won’t last.

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March 22nd, 2016

Posted In: The Greater Fool

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