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Another Bank Goes After Trudeau For His Disastrous Policies

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Justin Trudeau is in hot water yet again over government spending. Bank of Nova Scotia economists dropped a truth bomb on Trudeau, saying Canada’s interest rates would not be so high right now if not for the lack of control over his government spending in recent years.

While the Bank of Nova Scotia is not the first bank to call him out for reckless spending, it seems that Trudeau keeps on spending while inflation takes a wrecking ball to people’s wallets.

With inflation hitting Canadians hard, does Trudeau still not get it? Or does he simply not want to get it? 

Whatever the deal is, something clearly needs to shake up in Ottawa. The big question is; will Trudeau finally listen to the calls for change? Or will he stubbornly stick to his carbon taxes and climate agendas until it’s too late to turn things around? 

According to Bloomberg, economists at the Bank of Nova Scotia say that monetary policy in Canada would not have to be as restrictive if the government had shown some restraint in their spending over the past few years. 

They believe that elected officials’ lack of spending restraint is contributing to the need for the more restrictive monetary policies currently being implemented by Canadian authorities.

The news comes right after Justin Trudeau said that his government has “always exercised fiscal restraint,” and only a week before the fall fiscal plan is set to be released by Finance Minister Chrystia Freeland.

At the conclusion of the 2023 APEC summit in San Francisco, this is what Trudeau had to say when asked about government spending.

While Trudeau can insist to reporters all he wants, Scotiabank findings say otherwise.

According to a report by Scotiabank economists Jean-Francois Perrault and Rene Lalonde, the increased spending and consumption by the Canadian federal and provincial governments since the pandemic accounts for around 200 basis points of the interest rate tightening that has occurred. 

The increased government spending and consumption during the pandemic seems to have contributed significantly to the need for higher interest rates to combat inflation.

Perrault and Lalonde calculated that if there had not been an increase in government spending during the pandemic, the Bank of Canada’s key overnight lending rate would only be around 3 percent right now instead of the current 5 percent. Without that additional government stimulus, interest rates would not have needed to rise as much to contain inflation.

“There is no question in our minds that fiscal policy has complicated the task of monetary policy,” the economists wrote on Friday. “Interest rates are substantially higher than they would be had government consumption spending at all levels of government remained fixed in relation to GDP.”

The latest report from Scotiabank economists highlights the tensions between fiscal and monetary policies in Canada.

This isn’t even the first time that a Canadian bank had to call out Trudeau’s government for their spending policies. Last month, Bank of Canada Governor Macklem previously implored government officials to align spending with the Bank’s inflation-targeting efforts, adding that it would be easier for him to bring price pressures to ease up a little if fiscal and monetary policy were “rowing in th e same direction.”

However, pandemic-era stimulus has stoked consumer demand, complicating the central bank’s ability to curb rising prices. Perrault and Lalonde provide fresh evidence that expanded government spending has fueled inflationary pressures. Their insights speak volumes regarding the fiscal policies of this Liberal government, and, more importantly, their impact on the quality of life of Canadians. 

“Our results suggest that fiscal policy was badly mis-calibrated since the pandemic from an inflation-management perspective,” Perrault and Lalonde wrote. “All levels of government are responsible for this.”

Finance Minister Chrystia Freeland will present a fiscal update on Tuesday, while Ontario, the largest province, recently released a financial plan maintaining high spending. 

Unlike provincial governments, the federal government also has an explicit mandate to help the Bank of Canada meet its 2 percent inflation target. 

Therefore, the upcoming federal fiscal statement carries additional responsibility to align fiscal policy with the central bank’s inflation goals. The Bank of Canada expects federal lawmakers to make budget decisions that support their efforts to bring down rising prices. 

With inflation currently well above the 2 percent target, the federal government faces added pressure to show spending restraint and avoid further fueling consumer demand.

However, while they face mounting pressure, Trudeau and his Liberal government do not seem to budge on the matter, and still insist that the government is showing restraint at a news conference in San Francisco.

How ironic is it that he made those claims at the APEC summit, which is an economic conference, while he ruins his own economy?

And while Trudeau stands firm on his climate agenda spending, his ministers are calling for his attention regarding other areas.

Minister of National Defence, Bill Blair, urged the government to spend more on military funding, amid global conflict and Canada’s strained relations with several powerhouse nations and major global powers.

In an interview with CBC news, this is what he had to say about the matter.

The minister makes the extremely valid point that the government needs to be careful when spending Canadian tax dollars, and the need to spend them on the right things, however that does not seem to be the case at all.

One person who never shies away from calling out Trudeau and his Liberal government is none other than Pierre Poilievre.

In his latest appearance, the Conservative leader laid out a clear set of demands for the Prime Minister and his government’s upcoming fall economic update.

He outlined three main demands for the upcoming federal fiscal update on Tuesday. He wants Trudeau’s government to cancel plans to increase the carbon tax, balance the budget to fight inflation and high rates, and prioritize policies that support home building rather than expanding bureaucracy. Poilievre is pressuring the Liberal government to take these fiscal actions in the upcoming statement.

Poilievre alleged that Trudeau intends to raise the carbon tax fourfold over the next few years. Poilievre stated, “Until we can have an election focused on the carbon tax, which I am confident I would win, I propose a compromise.

For his proposed compromise, Poilievre urged Trudeau to halt any further increases to the carbon tax.

Poilievre noted that one year ago, Trudeau had promised to balance the budget by 2028, but has since backtracked on that commitment. Poilievre argued that all the extra spending under Trudeau’s government has fueled inflation and forced the Bank of Canada to maintain high-interest rates.

With $900 billion in mortgages set to renew into higher rates over the next three years, Poilievre said reducing rates before those renewals is urgent.

For his second demand, Poilievre called on Trudeau to balance the budget in order to bring down inflation and interest rates.

Poilievre’s third demand was for Trudeau to adopt the Conservative housing plan, which focuses on building homes rather than expanding bureaucracy. Poilievre criticized Trudeau’s housing approach for providing photo-op grants to local politicians in exchange for taking credit on housing that would have been built anyway.

Poilievre also summarized his own housing plan, which would tie federal funding for municipalities to meeting annual home building targets. Those who exceed targets would get bonuses, while those who miss would be penalized. Poilievre argued that after eight years under Trudeau, Canada has the fewest homes per capita in the G7 despite having the most land available.

After his speech, Poilievre sent a letter to Deputy Prime Minister Freeland. The letter listed Poilievre’s three demands, stating that common sense Conservatives would only support the fall fiscal update if those conditions are met.

The mounting evidence suggests Trudeau’s spending habits are making the Bank of Canada’s inflation fight even harder. With experts like Scotiabank calling for fiscal restraint, the pressure is on the Prime Minister to show restraint in the upcoming budget.

But Trudeau seems more interested in his carbon taxes and climate agenda, despite the economic turmoil.

As Poilievre argues, balancing the budget and limiting carbon taxes could offer relief to struggling Canadians. Trudeau would be wise to take some notes from Poilievre rather than outrightly dismissing him, as he usually does. 

The coming fiscal update will be a defining moment. Will Trudeau finally align with monetary policy to ease inflation? Or will his Liberal priorities prevail yet again? 

The fact of the matter remains that Canadian lives hang in the balance.

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