By David Duval
Throughout the history of advanced Western democracies there’s probably never been a year quite like 2020. Most of the wars Canada and its allies have fought were overseas (Europe and Asia), with virtually no danger to their citizens residing on home soil. Governments were not able to impose restrictions on its citizens like they are today in their efforts to fight the COVID-19 pandemic.
In Canada, the ruling Liberal government – aided by the New Democratic Party – is using the pandemic to implement a radical ideologically-driven agenda that would have been impossible had Canadians not felt threatened by a virus.
Among the most serious threats to our long-term economic security is the massive deficit that Canada is presently running – estimated to be at least $350 billion this fiscal year. (It’s hard to tell what the final number will be given the fact the government has not formally tabled a budget to parliament).
Equally as onerous is the fact there is no clear plan presented by the government on how it plans to pay it down the debt or when it will rein in spending. As of March 31, 2021, Canada’s federal debt is projected to be $1.43 trillion, an unprecedented level for a country with a population of less than 38 million.
Fitch Ratings has stripped Canada of its AAA credit rating and downgraded the country to an AA+ rating, stating it expects the federal government’s COVID-19 response measures to raise Canada’s debt to 115.1% of gross domestic product (GDP) in 2020, up from 88.3% in 2019.
Although interest rates remain low and are likely to remain so for some time to come, higher interest payments are a major consequence of debt accumulation. Much like households paying interest on borrowing related to mortgages, vehicles, or credit card spending, governments must make interest payments on their debts. These payments can increase with rising interest rates which are beyond their control. Revenues directed toward interest payments mean that there is less money available for tax cuts or government programs such as health care, education, and social services.
The delayed parliamentary budget filing comes amid reports it is planning to increase the capital gains tax on income-producing real estate. In addition, investors fear the minority Liberal government, supported by the Socialist-leaning NDP, will decide to increase the capital gains tax on stock purchases, effectively diminishing returns to investors including pensioners who no longer have access to interest rate-sensitive sources of revenue. The current capital gains inclusion rate in Canada is 50% which compares to long-term capital gains tax rates in the United States for assets held for more than a year of 0%, 15%, and 20%, depending on one’s income.
Adding to the long-term consequences of escalating federal debt is the government’s ideological promotion of climate change and its resolve to destroy or effectively negate the contribution of Canada’s energy industry to the national economy. Most of Canada’s oil industry is located in land-locked Alberta which between 1961 and 2017 contributed more than $600 billion to Ottawa in net federal transfer payments, largely due to a robust and prosperous energy sector.
Yet the federal government continues to implement roadblocks to this vital economic contributor under the guise of modernizing the National Energy Board (NEB) whose mandate is to “promote safety and security, environmental protection and economic efficiency in the Canadian public interest, in the regulation of pipelines, energy development and trade.”
Oil industry executives say the passing of Bill C-69, which the government says is designed to modernize the NEB, will effectively prevent any new pipelines from accessing tidewater in Canada.
The Trudeau government has already killed Enbridge’s Northern Gateway pipeline after it had undergone years of a grueling regulatory process and was passed by the Harper government. Trudeau’s government had to purchase Kinder Morgan’s Trans Mountain pipeline and its plans for the twinning of the pipeline which will run roughly parallel to the existing pipeline between Edmonton and Burnaby, (east of Vancouver) and will be used to transport diluted bitumen to the west coast and overseas markets.
More recently, Ottawa extended the review period of TC Energy’s bid to build the final segments of an expansion of the NOVA Gas Transmission by another 150 days, reportedly to accommodate further consultations with Indigenous communities near the route. The project involves the construction of 344 kilometres of natural gas pipeline and associated facilities in northwestern Alberta to enhance natural gas transmission from northwestern Alberta and northeastern B.C. With a planned startup in April 2021, the project was to employ 5,500 workers in its construction phase, with implied additional upstream spinoff benefits of $1.5 billion.
You may not like U.S. President Donald Trump; however, he recently approved a permit for a proposed rail line connecting Alaska and Canada which would decrease the time required to move products between Asia and North America. Trudeau has already cautioned that the plan must undergo a rigorous environmental assessment under Bill C-69, hinting it was unlikely to pass muster “before the proponent goes too far down the round and invests too much money in it.”
Once supportive of Bill C-69, the Mining Association of Canada (MAC) has expressed “deteriorating confidence” in the liberal government’s new project assessment act, citing Environment Minister Jonathan Wilkinson’s decision to subject Teck Resources’ Castle Mountain Mine expansion project in southeastern BC to federal review.
The project had already undergone a rigorous provincial environmental review process with the BC Environmental Assessment Office and is an essential element in extending the life of Teck’s existing Fording River steel-making coal operation, one of Teck’s four steel-making coal mines that are significant economic drivers for BC and Canada.
Pierre Gratton, President and CEO of MAC, said the decision “certainly has the potential to lead to longer timelines at a time of unprecedented global economic uncertainty.”
This is the second major regulatory hit for Teck Resources which had no option but to cancel a planned CAD$20.6 billion oil sands mine in northern Alberta owing to uncertainty about Canada’s climate policy,
For some of Canada’s resource industries, the future looks uncertain – maybe bleak – and guess who will make up for the lost resource revenues the government currently enjoys.