OPINION: The federal government must act responsibly against inflation

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The latest data published by Statistics Canada are unequivocal: the country is shaken by galloping inflation, which reached 7.7% for the month of May, a peak in 39 years. Faced with this serious situation, which weighs heavily on all Canadians, measures must be adopted to bring inflation down — first, increase the Bank of Canada’s key rates in the next announcement scheduled for July.

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While the 0.9 percentage point increase in the inflation rate from April to May of this year is mainly attributable to the explosion in fuel prices, let us not forget that the federal government, with its massive spending and disproportionate, has played an important role in the current situation.

Turn off the spending hell

The current federal government has spent astronomical sums, not only to support the population in times of crisis, but also (and this is the problem) in new programs. These further increased Canada’s net federal debt, which topped $1.26 trillion in 2021-22.

The effect of these new programs, combined with the excessive growth of the government apparatus, all largely facilitated by the Bank of Canada’s very accommodating monetary policy, has been to stimulate aggregate demand. This has created an imbalance between the supply of goods and services and their demand in the Canadian economy, resulting in widespread price inflation.

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Claiming that these expenditures are good for the population, as the government has done, is therefore disconnected from reality. In fact, these expenses nausea acted like a veritable fire, seriously harming the Canadian economy. Moreover, the absence of a timetable for returning to balanced budgets shows the lack of importance accorded to sound management of public finances by current political decision-makers.

The Bank of Canada, for its part — after fanning the flames and then failing to sound the alarm — is at least now trying to play the good fireman and put out all hell. Of course, this has a negative impact on Canadian families, since the water not only extinguishes the fire, but also damages the wood.

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Interest rate hikes are having a significant impact on mortgage holders, especially those who purchased properties in the overheated real estate market of the past two years. Higher rates also impact businesses that have borrowed money to finance their operations. Although the priority is indeed to extinguish the fire, the negative side effects of this action could be mitigated by some judicious political measures.

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Suspend the gas tax

With the current price of fuel being particularly high and having a direct impact on the wallets of Canadians, especially retirees and the less fortunate, one measure that would give the population some respite would be to suspend federal taxes on fuel. Following US President Joe Biden’s decision to suspend the federal gasoline tax of 18 cents per gallon for three months, the Canadian government could and should also suspend the federal gasoline tax of 10 cents per liter. .

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The Minister of Natural Resources of Canada, Jonathan Wilkinson, however, quickly ruled out any possibility of helping Canadians by eliminating this tax. In the meantime, provincial governments should suspend their own special fuel taxes, as Alberta has successfully done.

It is not unreasonable that the public, hard hit by inflation and rising interest rates, expects the government, which has precipitated this situation with its overspending for so long, to put some pressure on it. order in its finances, while adopting targeted measures such as the suspension of fuel taxes to provide some relief to Canadian families. It’s time to act, but some don’t seem to have gotten the memo.

Gabriel Giguère is a public policy analyst at the Montreal Economic Institute (IEDM) and Olivier Rancourt is an economist at the IEDM.

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