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The Observer

A look at Budgetary Policy

Posted by Joshua Claycamp on

This is an automated transcript. It's accuracy is not guaranteed. 

It's Thursday, April 7 2022. I'm Joshua Claycamp. And this is the observer a Kamloops Christians reflection upon the news from a biblical perspective. In order to help Christians understand how we need to think about current events.

Today is the day that the federal Liberals will be rolling out their budget. A document which we noted yesterday on the observer is an intensely theological document. When we encounter budgets, we are looking at values, we are looking at priorities. And all of this speaks to the heart of those who are in power in terms of reflecting their desires for the country. Finance Minister Chrystia Freeland will unveil the 2022 federal budget today, making it the first budget announcement since the 2021. Federal election, she's expected to roll the budget out this afternoon at approximately 4pm Eastern Time. The question that we're all asking ourselves is what should we expect? Government officials and economists told the Globe and Mail that it will likely be informed and guided by the liberal government's spending promises from the election, as well as the new spending promises which they agreed to when they entered into the supply and confidence agreement with the NDP and a projected increase is also considered to be likely in terms of defense spending as a result of the war in Ukraine. Here's everything we know ahead of the announcement, which is expected to come later this afternoon. The first question is what will the budget cover? This budget is expected to have three basic areas that it is going to focus on. Those areas include measures that are intended to address climate change, measures that are intended to address housing affordability, and measures that are intended to address Canada's role in the world. And like Canada's role in the world, we mean specifically military defense spending, as a result of Russia's invasion into Ukraine, this last addition is a rather late addition, and it is expected that Ottawa will boost defense spending in response once again to events happening in Western Europe. It is not entirely clear whether or not the we will meet the 2% of GDP that is often expected of NATO countries, however, we are likely to see an increase in defense spending. Regardless, the 2022 federal budget is an opportunity for the government to outline how it is going to wind down the massive emergency spending related to the COVID 19 pandemic, while at the same time delivering on billions of dollars in promised new spending from last year's liberal party election platform.

In light of all of this new spending, it would behoove us to step back and ask the question, what do business leaders in Canada think about this government's approach? Indeed, that is exactly what the Globe and Mail wanted to know when they approached royal banks of Royal Bank of Canada's chief executive Dave Mackay. Now Royal Bank is one of the largest banks in the world. It is certainly the largest in Canada, employing over 85,000 employees and with a balance sheet of $1.75 trillion dollars more money on the balance sheet for Royal Bank of Canada than many of our provinces.

And the Royal Bank chief executive Dave Mackay says, quote, some of the challenges that we are facing are ideological challenges. What we're hoping to see in the budget is a shift in ideology from tax and spend, which does not create sustainable growth, to an incentive for entrepreneurs to take risks and innovate and grow and solve problems within our economy. tax and spend to me, Dave McKay says is like eating sugar pops for breakfast, you feel really good for an hour and then you feel really crappy by noon at the end of the day. And that's what tax and spend gives you. It doesn't give you sustainable prosperity end quote.

And he's not the only one verbalizing these concerns global mail went on to interview a number of other top business executives and top executives are all saying that it's past time for a shift from crisis management, which was the policy of the government during the pandemic, to a strategy that makes more economic expansion and productivity the top priorities they want to see the government's fiscal approach, which they characterize again as being driven by big ticket spending, altered instead to focus on growing the nation's wealth in order to distribute it more fairly. Their call along with Dave McCall's Call to Action resonates within the broader discontent of corporate Canada.

The Globe and Mail went on to interview more than 30 other CEOs beyond just the fine financial sector including senior business leaders, economists, former government officials, and many of them are increasingly concerned that at a moment of massive global upheaval and transformation, Canada is missing a chance to set itself up for long term success. The worry is that the country is sending the wrong signals and failing to encourage businesses to spend on expansion, and subsequently, the country is missing out on the opportunity for investments from foreign countries. What I found particularly interesting was the comment that business executives and bank executives want to see the government's fiscal approach, which they have previously characterized as being driven by big ticket spending altered as a Globe and Mail claims to a focus on growing the nation's wealth in order to distribute it more fairly.

Now, that's the question we're confronted with as Christians, it is right for the government to act in such a way as to grow or increase the government's wealth, but to act in such a way as to grow that wealth only for the purposes of compensate, confiscating it in order to redistribute it. That is another moral matter entirely. As Christians, that line alone causes us to sit back and to reflect and ask the question, once again, what does Scripture teach about wealth? What does Scripture teach about money and property and ownership and these kinds of things? Again, when we have these discussions, it's important for us to start utilizing terms that will make it easier or more convenient to have a great conversation that will utilize significantly advanced economic ideas. And so just going to introduce the term here, the term of GDP, which stands for gross domestic product, I've already used it a several points previously in this episode of the observer.

But I want to specify exactly what it is that I mean by this term. And this term is essentially the standard economic measurement of what a nation's economy produces. Within a year, it's the market value of all the goods and services that are produced within a country in a given period of time. And again, that period of time ordinarily is one year. This definition includes goods and services, goods, including all the shoes, clothing, vegetables, bicycles, books, newspapers, cars, every material thing that is produced and then sold in the market. Whereas services would include things such as classes that are being taught by teachers examinations that are being given by doctors, or the paid work of house cleaners working in someone's home. Market value means that goods and services are counted in the GDP. And when they are counted in GDP. This means they are sold legally in the markets.

And this is an important, distinct distinction, a loaf of bread, baked and eaten at home, is not technically counted in the GDP because it's not something that's sold in the market, loaves of bread that are baked in a home and then sold in public are however counted because they have been sold in a market and therefore a monetary value can be attached to those loaves of bread. The size, therefore, of a nation's GDP, its gross domestic product is the main factor that determines its wealth, or its poverty. This is because when we look at GDP, we are able to calculate relative to the population of the country, just exactly how much money or wealth or lack of wealth there is, within that country, all you do is you just take the GDP that is the total value of all goods and services that have been produced inside a country and you divide that number by the number of population, and you're able to come up with a per capita estimate of income. For example, in 2011, Honduras had a GDP of $36 billion, with a population of just over 8 million people. If we divide $36 billion by 8 million people, we have a per capita income in round numbers of about $4,500. That means everybody in Honduras during 2011, earned approximately $4,500. Now this is only an approximation. Obviously, some people earned more some people earned less, there are children included in this population that probably didn't earn anything. All of this is intended, though, just to give us a guide, relatively speaking, to what kind of wealth there is within a country that has a certain number of individuals that make up the population of that country.

This leads us to another question, what would increase a country's GDP? In other words, how can we produce more more wealth within the country. Now, the answer this question is complex. And it could involve quite a number of factors. Answering this question in detail would take way more time than what we have here on the observer. But we could briefly say that GDP is basically increased when a nation continually creates more goods and more services that have enough value to be sold that is to be demanded by others who want to purchase those goods and services within the marketplace. Therefore, the focus of efforts to overcome poverty or to increase GDP that is, essentially to raise the level of wealth within a country. All of these goals can be the focus of efforts by the government. But there are a few cautions here. The correct goal for a government is to orient policies to put in place economic and fiscal policies that will increase or enhance those individuals who are in the marketplace, it will increase or enhance their ability to invest, to take risks, to create products to sell services. And if there is such an onerous level of bureaucracy or regulation, that it makes the production of those goods or the selling of those services prohibitive. In other words, there's no way you can bring those products or those services to the market to sell them at a price that others would pay for them. And the reason you're not able to do that is because of the cost that is involved in the government oversight, the bureaucratic regulation, and all of the expense that's involved in satisfying government policy and bureaucratic requirements, well, then that just stifles economic growth. So the correct goal for a government then is to essentially encourage individuals to work hard turn out a good product, and to sell that product in the marketplace. This is what adds wealth to a nation. This is what increases as we've referred to already, GDP or gross domestic product.

When we talk about producing more goods and services, and thus increasing the gross domestic product, we are referring here to an amazing process by which human beings are able to better their own economic situation by creating valuable things that simply did not exist before. When they do this, they add not only to their own wealth, but they also add to the wealth of the entire nation. And they do this not by taking something of value from someone else. But by creating entirely new products or services that no one ever had, because they previously did not exist. Once again, the way that we increase the wealth of the nation is not by taking something of value from someone else, which does not increase total GDP at all. That's not how we do it. But the way that we raise GDP is by creating entirely new products or services that no one ever had before because they previously did not exist.

This is inherent in God's command to Adam and Eve. In Genesis chapter two, when he sent them into the world. He said, Go forth, Be fruitful and multiply fill the earth and subdue it and have dominion over it. This is inherent in the creation mandate. As we have been created in the image of God, we are called to go out in the world and to produce goods and services. This is echoed in the New Testament Paul writing to first to the Thessalonians. He says if a man does not work he does not eat inherent in the created order is this impulse that we should contribute to the flourishing of society with a good work ethic that seeks to produce goods and services that others will find valuable. And this is what will increase our wealth. Now, the bank executives quoted in this Royal Bank in this Globe and Mail article, they made the comment that they wanted to see the government's fiscal approach which they characterized as being driven by big ticket spending. And they wanted to see that focus altered away from just spending money that the government doesn't have to a policy that is geared rather towards a growing the nation's wealth. Of course, they added the caveat that they felt that the nation's wealth should be grown in order that it could be distributed better. And now as Christians we disagree with that.

However, it is not wrong to say that the economists are wanting the Government of Canada to enact policies that will grow the nation's wealth. This is indeed what we should be looking for. Let's Christians. Now, we don't know exactly what is going to be announced later this afternoon when Chrystia Freeland, the finance minister releases the budget. But we know that there are a couple of items that they're going to have to take a look at, including dental care and PharmaCare. The projected federal debt to GDP ratio is expected to decline over the medium term as federal spending on COVID-19. Supports wind down. In other words, the debt of the government that is how much money the government is spending that it has not accumulated through revenue, that is to say taxes from the citizens, that debt has been steadily increasing all throughout the pandemic, as the government regularly has been spending far more money than it has. This has resulted in inflation, which has resulted, of course, in a devaluing of the Canadian citizens dollar.

In effect, the federal government is stealing from us all by just pumping out money, which is to say it is creating products and services. It is spending money without creating products and services, which lowers the value of everyone's money overall, as the products and services will simply rise to meet the level of money that is circulating in our in our system. Now, as the government is winding down that federal spen that federal spending on COVID-19 supports, then the projected debt that the government holds that the government continues to accrue, that debt will begin to taper off in proportion to this country's GDP gross domestic product. And the parliamentary budget office is suggesting that it's going to go from 47.7% in the 2021 2022, fiscal year to 42.3%. By 2026 2027, another's over the course of five years, we're going to see a roughly 5% drop off in debt, relative to gross domestic product, that means basically nothing. I mean, as Christians looking at this, we understand that inflation at this point is about 4.5% every year. So over the course of five years, we're looking at, I mean, an average inflation rate of approximately 20%. If you just do the math, that is our money at the rate of inflation that we're currently experiencing is going to be worth about a fifth less in five to six years and what it is today, so when the PBO is coming out and saying well, they're gonna taper down their debt to GDP ratio over five years, well, I don't really see how that's gonna make any kind of a meaningful contribution as far as the overall economic picture of Canada is concerned. But what is interesting, if we accept that if we take that as good news, which I'm not sure that we should, but even as we accept that, the parliamentary budget office goes on to say that the cost of servicing that debt over the next five years is expected to rise. The Bank of Canada is widely continued, is widely expected to continue to raise interest rates, the parliamentary budget office is still projecting that cost to be low. Nevertheless, the numbers that were released early this morning indicate that it'll reach as high as 11.5% of tax revenues over the next few years.

So even though we expect a 5% decrease in debt to GDP, over the course of five years, with perhaps 20% inflation, nevertheless, we're looking at perhaps an increase of 12% in interest rates. Now, if you do all that math, what this basically spells out is that the government is spending more and more money than what it has, the amount of goods and services within Canada is remaining stagnant, it is not increasing, therefore, the value of our dollar is continuing to go downwards. All of this leads us to Christians in terms of looking at the money and we need to be thinking critically about how we're going to vote in a manner that's going to honor and glorify God in the years ahead. As federal, as Prime Minister Justin Trudeau comes out with Chrystia Freeland this afternoon, to release his budget, we understand that they're going to be spending more money than what they have. That in and of itself is a form of inflation, which is in and of itself a form of theft, stealing from all the other citizens of Canada. This is something that we need to be greatly greatly concerned about.

But the other issue that was presented during the election campaign last summer, the 2020 election campaign, Prime Minister Justin Trudeau promised a higher corporate tax rate for the country's biggest banks and insurance companies on earnings over $1 billion. This measure is estimated to bring in about an additional 1.3 to $1.4 billion per year, or close to $12 billion in additional revenue for the federal government over the next four to five years, the liberals intend to use this money, no doubt to pay for increased dental care which they have promised the NDP they will begin working on. And it could also be applied towards increasing PharmaCare, which is to provide assistance for prescription drug medications for seniors and those who are in need of such medications. But it's also intended to be applied towards defense spending. This is of course, not a tax that will actually be paid by the banks, as the banks will simply pass the cost of this tax on in surcharges and other fees to those individuals who are using those banks for their money. So that's right you and I will not only see an increase in inflationary pressure over the next four to five years. But you and I are going to continue to see an increase in taxation. It'll be a subtle taxation, it won't show up anywhere in our income statements per se. But we will notice it when it comes to our bank deposit fees.

So dear Christian, you need to be prepared that over the next couple of years, there will be an ordinate strain placed upon your pocketbook. This is a matter for prayer. And this is also a matter for us to be placing before the Lord in terms of looking to him for his provision, and for his caretaking of his people. We await the announcement along with the specific details of this federal budget this afternoon at four o'clock. We'll have more analysis on it all here this tomorrow morning on the observer. And so if you'd like to get an in depth Christian perspective on exactly what it is we are to make of the federal government's budget as delivered to Parliament by the liberals. Join us here tomorrow morning once again on the observer. I'm Joshua Claycamp. And you can follow me on Twitter by going to twitter.com backslash Joshua Claycamp. The observer is a ministry of First Baptist Church where Christians seek to discern the news differently. For more information on First Baptist Church just go to first Baptist Kamloops dot o RG for For more information on first Baptist classical Academy just go to first Baptist classical dot o RG and I'll meet you again tomorrow for more on the observer.

Tags: money, wealth, services, government, christians, debt, budget, spending, country, taxes, canada, creating, gdp, goods, increase taxes, defense spending, gross domestic product, royal bank, parliamentary budget office