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John Ivison: Trudeau's COVID response shows money can buy the affection of voters

Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland. A deliberate attempt to redistribute income under the cover of the pandemic would constitute the “new New Deal” Freeland once championed.
Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland. A deliberate attempt to redistribute income under the cover of the pandemic would constitute the “new New Deal” Freeland once championed.

All governments know that if they rob Peter to pay Paul, they can always depend on the support of Paul. But the Trudeau Liberals have taken the art of the political pay-off to unprecedented levels.

Even as Canada fell behind emergent nations in vaccinations, the Liberals maintained their lead in the polls.

New data from Statistics Canada offers some indication why the prime minister has been able to brush off public embarrassments that would have brought down less benevolent governments.

The national statistical agency measured disposable income for the first three quarters of 2020 and found that it increased around 17 per cent across all income levels, largely because the government’s COVID support greatly exceeded losses in wages and salaries. If the federal government had not introduced support measures, overall household income would have fallen by around four per cent.

“The policy was to get money out the door indiscriminately. It was an exercise in vote-buying,” said Philip Cross, a former chief economist at Statistics Canada. “If you don’t believe deficits are important, why not do it? What price have they paid?”

There was clearly a need for the government to step in with income support for those who had been laid off.

But the data suggests that the government went far beyond merely replacing lost income. This was either done deliberately, in order to reap the political benefits, or unintentionally, which raises questions of competence.

Transfers from Ottawa to individuals rose 57 per cent in the second quarter, resulting in many households gaining up to $3,000 more than they lost.

Transfers to households where the main income earner was younger than 35 rose from $11,584 for the whole of 2019 to $17,006 for the first three quarters of last year. “Younger people got the CERB and the student benefit, regardless of whether they needed it – $5,000 just for being young,” said Cross.

The proof that many people did not require the money for rent and groceries is apparent in the savings rate revealed by Statistics Canada.

In 2019, net savings amounted to $1,157 per household. The new data suggests households saved $10,507 in the first three quarters of last year.

One happy outcome for the Liberals was the narrowing of the income gap between the lowest and highest income earners, as the lowest income quintile saw its share of disposable income increase from 6.1 per cent in the first quarter to 7.2 per cent in the second quarter. Finance Minister Chrystia Freeland wrote a whole book on income inequality and has spoken admiringly about a focus on redistribution making more sense than a focus on growth.

A deliberate attempt to redistribute income under the cover of the pandemic would constitute the “new New Deal” she once championed.

The major problem with such social experimentation, of course, is that it is being conducted with borrowed money that will have to be repaid one day.

The finance department’s fiscal monitor for December was released last Friday and indicated that the budgetary deficit for the April to December period was $248 billion, the bulk of which ($159 billion) was because of transfers to persons. The result is a federal debt-to-GDP ratio that has risen from 30 per cent to 50 per cent.

In his pre-budget letter to Freeland, Business Council of Canada president Goldy Hyder urged the finance minister not to prioritize wealth redistribution over economic growth and competitiveness.

“That approach is clearly unsustainable. Without an enabling environment that prioritizes private sector growth, nurtures new ventures and incentivizes existing businesses to invest and create well-paying jobs, the economy will falter and household income will stagnate,” he said.

The federal budget expected later this month will reveal whether Freeland believes “building back better” means permanently expanding the size and scope of government.

The Trudeau Liberals have taken the art of the political pay-off to unprecedented levels

What is already clear is that the federal government’s COVID response was not the pre-ordained consequence of the pandemic – it was a political choice.

A report from the Organization for Economic Co-operation and Development shows Canada was an outlier among its peers when it came to income support.

As the economy contracted 10 per cent in the second quarter, the federal government’s transfers helped to increase household income in this country by 11 per cent. Meanwhile, incomes in other developed countries, including the U.K., France and Germany declined.

More fool the leaders in those countries, one supposes. Trudeau has shown that governments can buy the political affections of their voters at minimal cost in the short run.

There is a price tag, of course, but this prime minister will be long gone by the time the bill comes due.

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