Reality check

I got about 40 responses regarding the 3 choices for this blog. That is- 1. A budget commentary, 2. A budget commentary with a political rant, or 3. Just stick to the markets. As of this writing: a slight majority, 25 of the 40, wanted me to do the rant plus the budget.  The balance wanted either just the budget, or just the markets. Because I am not the current Canadian government, I listened to what you want, and will not dictate a c-11 type censorship policy here.  I’ve decided to do the budget commentary–because that was in fact the majority total (budget only + budget & rant). But, I’m going to inject some rant into the commentary, to meet the demand of the majority rant-asking readers. I’m sure you know that I am not unique in my view on the budget. I will stay away from my ethical and totalitarianism concerns in Canada.  Yet – I suggest you give this a miss if you love the current government, or find budget discussions boring. To lighten it up, there are 4 jokes embedded in this otherwise serious topic. Oh, and I also provide a solution, mentioned in the past, to rectifying the problem. And of course, I’m back with my regular Technical Analysis in the next blog. Like it or hate it, here goes.

The budget, and inflation

Lets get something straight. Economics 101:  The Liberal government’s recent budget included yet again, more money printing to “help with inflation pressures”. Printing money does not help with inflationary pressures.  It creates more inflation. Gosh, really?

Economics 101, and the two sides of the inflation equation:

1. Supply of money.
2. Supply of goods/services.

Printing more money adds to money supply, which means more money chasing the same goods/service. This increases inflation.

Gosh, really? Its staggering how few people grasp this reality!

Allow me to quote one point in the 2023 budget summary (courtesy BNN):

• New spending on health transfers to provinces and expanded dental care totals $31.3 billion over six years, while clean-energy incentives will cost $20.9 billion over the forecast horizon. Targeted inflation relief measures total $5.2 billion

Lets repeat that last sentence: “Targeted inflation relief measures total $5.2 billion.”

Say, what??? This is like saying we are going to cure your cancer by increasing your cigarette usage.

Its beyond “duh”- yet financially uneducated individuals will have no clue of the insanity behind this policy! Spend your way to prosperity! Smoke your way to better health! I’m almost at a loss of words.

“It seems sensible to assume that this will add to pressures on measures of core inflation” as well as “aggravate the Bank of Canada’s stance on monetary policy. Any belief that it will ease inflationary pressures must have studied different economics textbooks”. Derek Hold, Scotiabank head of capital market economics.

Here’s another little discussed (probably politically incorrect – as everything is these days) fact. The budget added another $55 MM on top of the $4.5BB “Immigration, Refuge Citizens Canada” program. Canada aims to add 465,000 new permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025. This influx, although likely a positive long termed contributor to economic growth, adds to current demand in an already inflationary environment. Higher population creates consumers of food, shelter, transportation, etc. The program raises our current debt, and adds more to money supply. Recall the 2 rules of economics:  Greater demand for goods & service + More supply of money chasing it = Inflation.  This is math. I ponder on the timing of this policy, given the current stress on core inflation.

Joke #1: Well known fact…4 out of every 3 Liberals don’t understand math

The money printing continues, putting pressure on the effectiveness to fight inflation by restrictive monetary policy by the BOC. Witness just a few of the past unbelievable $Billions of your tax dollars given to Loblaws, Mastercard, WEF, the UN, “LBGT” promotion, Bombardier, Aga Khan, WE charity, SNC, Media Bailout, “Gender budget”, CBC, “systemic racism fund” …..on and on. But wait, there’s more!-Just announced:

• $13BB to Volkswagen – the argument being it will create 3000 jobs. That’s some mighty poor ROI!!!!
• $4BB “housing fund”
• $4.5 BB free dental

Joke #2: How do you discourage a Liberal from crashing your party? Answer: Tell them its a cash bar.

More points on the budget from a BNN summary – my comments in bold. As usual, the current NDP-erals are all about tax n’ spend, with no concept of fiscal knowledge, basic math, or economically responsible policy:

• Federal debt as a proportion of GDP will climb to 43.5 per cent in the fiscal year that begins April 1, from 42.5 per cent this year. It’s expected to decline to 42.2 per cent in 2025-26 and 39.9 per cent by the end of the forecast horizon. Yeah, right. Based on proven Liberal fiscal prudence, I assume?
• Revenue projections are down $5.7 billion on average per year from November’s budget update, reflecting a weaker economic outlook.
• Trudeau’s government is aiming to support Canada’s energy transition (to green) through a mix of investment tax credits and cash handouts. The budget includes a clean electricity tax credit worth $6.3 billion over six years and one for hydrogen projects worth $5.6 billion. Another investment credit for clean manufacturing, intended to be used for producing electric vehicle batteries or processing critical minerals, is worth $4.5 billion.  This over $16BB. Gosh, that spending won’t push inflation higher! All for an environmental target that has a negligible impact given Canada’s net CO is a mere 1.6%, a global rounding error even if we could eliminate carbon. As an aside – I recently heard that Canada – as most cold climate countries – couldn’t heat homes/factories/schools etc. with the combined wind turbine/solar panels in the world. AKA–fossil fuels remain vital unless you live in Florida or Costa Rica. The green movement is clearly much about political virtue signaling.  
• Conclusion: The deficit for the fiscal year ending this week grows to $43 billion, or 1.5 per cent of gross domestic product, from the $36.4 billion Freeland forecast in her November budget update. By 2027-28, the government expects a shortfall of $14 billion, instead of the $4.5 billion SURPLUS it previously projected. Imagine that!!! Again – duh!!!

Joke #3: During the 2016 Olympics in Brazil, it was reported that a severe storm may have endangered aquatic athletes. Upon hearing this, Justin Trudeau asked “was anyone injured?”. His aide replied “Just one, Brazilian sir”. Shocked, Justin theatrically fell to the ground, weeping. Justin, between sobs, then asked “How many people are one Brazilian?”.

Debt and Taxes

• Freeland’s budget changes tax rules for financial institutions that receive dividends from Canadian companies. Payouts will be taxed as business income, raising an expected $3.2 billion over five years. You saw the “spend”–now the “tax”.
• The Trudeau government is also changing the alternative minimum tax on high earners. It’s boosting the rate to 20.5 per cent from 15 per cent, while quadrupling the income threshold at which the tax might apply. The measure applies primarily to individuals who earn at least $300,000. So don’t strive to achieve great success in Canada. Just be average. Unless you’re an elite who gets his elaborate perks covered by taxpayers.

Conclusion: Why cut expenditures like the CBC or corporate handouts when you can tax hard working Canadians instead?

Joke # 4: Justin Trudeau proudly proclaimed to his more astute ministers that he had finished a jigsaw puzzle in a record 6 months. One Minister suggested to Justin that finishing a jigsaw in 6 months is not much of an accomplishment – to which Trudeau replied “But the box said suitable for 6 to 7 years”

Worth reading – this quick look at Canada’s debt by Brooke Thackray: (30) Brooke Thackray on Twitter: “Busting the myths of the myth busters. https://t.co/QDccMXKwEt” / Twitter

Another expense: The sad reality is that nearly 1 in 4 Canadians work for the government now in some capacity, which is nearly double that of the United States. The Parliamentary Budget Office released a report last week showing that spending on federal government employees has risen by 31% over the last 2 years from $46 billion to $61 billion in 2021-2022. 

Final thought: A solution

I noted in a prior blog “The Great Canadian Revolution” that taxpayers might not be so passive if they actually knew what their taxes that reduce their take home pay were actually used for:

Wouldn’t it be great if it was itemized? For fun – lets make an imaginary breakdown that might be reported on your income tax return.  I truly believe I am massively understating the discretionary figures in this example.  Of your imaginary $30,000 tax bill, you receive the following financial statement:

OK, that’s it for my budget-rant. Back early next week with timely market commentary.