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How Much Bad Policy Can the Economy Withstand?

Frank Atkins

I should not be surprised that Trudeau the Junior has made a real mess of economic policy in a manner that will particularly affect Alberta. It is as if the Liberals have spent so much time worrying about issues such as gender equality that they have no time to consider how the economy may be affected by economic decisions that have been made since taking office. Two recent events come to mind.

First, there was the seemingly vacuous decision to buy the Trans Mountain pipeline. It is not clear to me what the original intention was in this regard, but it is turning out to be a bit of an economic and political mess. The pipeline now appears to be in limbo, which is bad news for Alberta. Further the fact we cannot seem to get any pipelines built is having a detrimental effect on business investment in Alberta. Canada is increasingly being viewed as a poor place to invest. This is especially damaging to the oil and gas sector in Alberta. Interestingly, there is more than just economic damage from this decision. The Canadian Press used an access-to-information request to discover that the Canadian Security Intelligence Service wrote a report that says many members of environmental groups and indigenous communities see the purchase of Trans Mountain as a “betrayal.” So, the Liberals have made a policy decision that is bad for the economy and alienates some of their core supporters. It is almost like a script from a bad movie.

Second, Mr. Trudeau appears to be completely unaware his policies have backed Canada into a dangerous corner. In the United States, Mr. Trump has lowered business taxes, and the impact of this is beginning to be seen. Business investment is being driven back into the United States, and away from Canada. This, of course, is making the business investment problem created by the Trans Mountain purchase even worse. Unless Canada matches this lowering of business taxes, we will suffer. It is perhaps true the government will attempt to address this problem through the economic update in late November, but I am skeptical. The problem is the Trudeau administration has such a fondness for increased spending and deficits, it would appear impossible to contemplate lowering taxes.

Like father, like son, why didn’t the voters see this coming when they elected the Liberals? Trudeau the Senior instituted polices that discouraged business investment and while the economy performed poorly, he continued to increase spending and run large deficits. Interest rates went up, so the cost of borrowing increased, and thus more spending was required to maintain the large debt levels. In 2018, federal deficits and debt are large, spending continues to increase, interest rates are increasing and business investment is leaving the country. No amount of naive charm and empty rhetoric from the prime minister is going to solve these problems. One wonders how much bad policy it will take to have the Liberals defeated in the next election.

Frank Atkins is a senior fellow at the Frontier Centre for Public Policy.