Justin Trudeau tries to find a cure for 'inflationitis'
All around the world, persistent inflation is taking down governments
If the political and public policy challenges posed by inflation were easy to overcome, more governments would have done so by now.
Instead, recent elections have shown the current moment to be, in the words of the Financial Times' John Burn-Murdoch, "arguably the most hostile environment in history for incumbent parties and politicians across the developed world."
In fairness, inflation probably doesn't explain everything about the defeats incumbents have suffered over the past year. But the frustrations and anxiety caused by higher prices seem to be one significant common denominator — the factor David Coletto, the pollster at Abacus Data, recently dubbed "inflationitis."
Political leaders, Coletto argued, needed to respond with "empathy and transparency, acknowledging the real struggles people are facing."
"Their actions must feel like help," he wrote earlier this month. "They can do things that are perceived to provide immediate, practical, and universal relief — measures like tax cuts or direct payments or rebates. Price controls or reducing fees and tolls on essential services can also signal to voters that their governments and leaders get it."
On Thursday, Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland turned up at a grocery store in Sharon, Ont. to announce a two-month pause in federal sales tax on a number of household goods, along with plans to send 18.7 million Canadians a cheque for $250 in the spring.
"These are things that recognize that people are squeezed," Trudeau said, "and we're here to help."
Regardless of whether this will do anything to cure what ails the Liberal government — or whether it was the ideal policy response — what Trudeau and Freeland announced on Thursday at least had the virtue of being immediate and broadly practical.
A brief pause in parliamentary paralysis
The opposition parties were, unsurprisingly, unimpressed.
Demonstrating once more his flair and fondness for alliteration, Conservative Leader Pierre Poilievre dismissed Trudeau's announcement as a "two-month, temporary tax trick," motivated entirely by the political self-interest of the Liberals (and the New Democrats, who are likely to support the government on these measures). Mind you, Poilievre also stopped short of saying he'd vote against legislation to implement the changes.
Poilievre's argument is that Canadians would be better off if the Liberals instead repealed the federal carbon tax. That longstanding position of the Conservative leader still fails to account for the greenhouse gas emissions that the consumer carbon tax is expected to eliminate. But Poilievre also dismisses entirely the fact that the revenue generated by the carbon tax is rebated to households.
If (as successive reports by the parliamentary budget officer have found) many households — particularly those with lower incomes — actually receive more from the rebate than they pay in additional costs created by the tax, then many Canadians would actually be left worse off if the policy was repealed.
While claiming credit for the government's move on the GST — and even insisting the Liberals "caved" to a demand outlined last week — NDP Leader Jagmeet Singh also said Thursday's announcement was a "letdown" because the sales tax exemption was only temporary and didn't cover monthly bills. Perhaps that sets the Liberals and NDP up for further negotiations around the budget next spring (assuming this Parliament gets that far).
But for now, Tuesday's moves appear to clear the way for a temporary break in the Conservative filibuster that has tied up the House of Commons for nearly two months. Though the New Democrats apparently aren't yet willing to completely break the logjam, they are at least ready to help the government move for a brief pause that would allow the House to pass the legislation necessary to implement the GST break.
For a government whose time is increasingly precious, that's a valuable opportunity to actually get something done. And perhaps it sets the stage for a larger effort to get Parliament moving again.
Immediate help is just part of the cure
The price to the federal government of doing something to respond to inflation is not insubstantial. The GST pause for certain items will reduce federal revenue by $1.7 billion. Providing nearly 19 million Canadians with $250 each will cost approximately $4.7 billion.
Many Canadians undoubtedly are under stress, but is that the best use of those resources? Could those $250 cheques be better targeted at those who most need the help? (Anyone earning up to $150,000 will be entitled to one.)
Those are fair questions for debate. The Liberals likely would note that they have been taking other actions to deal with affordability concerns and have put significant resources toward lowering the cost of child care and providing dental care to those who lack insurance. They've taken steps to increase housing construction and there are ongoing efforts to support pharmacare and school food programs.
Whatever the practical or political merits of those efforts, the Liberals are currently on track to be the next incumbent government to suffer defeat in an election.
Not all of that can be pinned on inflation — having been in office for nine years, Trudeau has accumulated far more baggage than high prices and unaffordable housing. But inflation appears to be a significant drag on any government's re-election chances.
In Coletto's estimation, inflationitis requires more than just immediate help. He argued governments also have to counter what he calls the "the scarcity mindset" with "a clear, sustained message that we can work together to rebuild a stable, fair economy."
"Leaders must communicate a long-term plan to restore economic stability and address the things people feel are scarce — housing, affordable essentials and health care — one that reassures the public that their concerns are heard and that there's a path forward where everyone can thrive," he wrote.
A break on the GST and a cheque for $250 doesn't restore economic stability. But maybe it buys the Liberals a little more room to be heard when they try to talk about the future.
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