Prime Minister Justin Trudeau of Canada would reject claims that his leadership style is similar to that of former U.S. President Donald Trump or British Prime Minister Boris Johnson. But in at least in one respect the comparison is getting closer to hitting its target.
To win back the majority government his Liberal Party lost in the 2019 election, Trudeau is engaging in populist pandering that, if acted upon, could damage Canada’s economic performance.
Consider what happened last week. First the prime minister pledged to ban foreigners from purchasing homes for two years in an effort to cool Canadian house prices. The goal, he said: “No more foreign wealth being parked in homes that people should be living in.”
The next day, Trudeau announced a plan to impose a 3 per cent surtax on Canada’s largest financial institutions, raising their top rate from 15 per cent to 18 per cent. This would apply to profits over $1 billion (US$793 million) earned by big banks and insurers.
Whether originating on the right or left, such proposals will backfire, stifling growth and diverting attention from solutions that would actually help solve the problems that people care about.
Corporate tax rates should be uniform across industries to allow for investment decisions to be driven by economic considerations, not tax policy. By reducing after-tax profits relative to other industries, Trudeau’s surtax would lead to inefficient investment, hurting the productivity of the banking sector and the economy overall.
To make matters worse, the surtax would only apply to Canada’s largest banks and insurers. This makes it a barrier to growth — and arguably targets the most successful financial institutions in the country. Penalizing success is a bad idea.
Trudeau’s proposed restrictions on home purchases by non-Canadian buyers are aimed at improving affordability. Canadians have long chafed at stories of Chinese and Hong Kong investors buying up property in Vancouver, bidding up values there and in other cities, and also at foreign speculation in cheaper housing options. Toronto and Vancouver have already imposed a 15 per cent and 20 per cent tax, respectively, on home buying by foreigners. With housing prices nevertheless continuing their surge, Trudeau is calling for a two-year ban on such purchases.
It’s not as if Trudeau lacks more substantive proposals to address the problem — including a promise to increase the number of houses. But these ideas aren’t getting top billing, even though they would likely be much more effective. Blaming foreigners for domestic problems is more politically appealing.
To be sure, his proposals to go after big corporations and foreigners on behalf of “the people” are a long way from the provocations of Boris Johnson, who was a prominent figure in Britain’s decision to leave the European Union, or Trump, who demonized immigrants and championed protectionism in U.S. manufacturing.
We know that populist governance is bad for economic performance. In a recent paper, economists Manuel Funke, Moritz Schularick and Christoph Trebesch studied 118 years of data in 60 countries, including Canada. Out of approximately 1,500 presidents and prime ministers, they identified 50 as populist. Those 50 placed the alleged conflict between “the people” and “the elites” at the center of their campaign and governing style.
According to the authors, Trump fit the bill. Trudeau did not.
The economists found that countries lost around one percentage point of economic growth every year after a populist came to power. This underperformance existed relative both to each country’s long-run growth rate and to the current global growth rate, and held for at least 15 years. They concluded that after a decade and a half, national income per person was 10 per cent lower than it would have been if a populist hadn’t come to power.
“Rising economic nationalism and protectionism, unsustainable macroeconomic policies, and institutional decay under populist rule do lasting damage to the economy,” they said.
Maybe Trudeau’s proposals are just political positioning, intended to help get him through the Sept. 20 election. But if his party is successful, he should think twice before continuing to flirt with this style of leadership. Getting the populist genie back in the bottle is very difficult. And it can do great damage once it’s out.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
