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THE ECONOMY AND THE ‘PANDEMIC’

There is a growing concern about what the corona virus will do to our economy if and when we return to normal.  Those who are concerned are well justified in their anxiety. The fact is that the Canadian economy had come to a virtual stop and was in a steady decline long before we had even heard of the virus.

The appearance of the virus and the business lockdown will only make our situation worse. The factors that have led to our present faltering economy are as follows:

Private investment had dropped 35% in the last 5 years and the outflow of capital is alarming for the possibility of an economic recovery.

• The median family tax rate at 44% is far too high to expect an increase consumer spending.

• Our once positive trade balance (export over imports) has now become negative.

• Family income is not keeping pace with the rising cost of living and the increase in taxes.

• Canadian GDP per Capita has not kept pace with the successful economies of the world for years.

• Household debt in Canada is the highest in the world at 87% of income which is another indication that rates of taxation are too high.

• Productivity (GDP per hour) has been declining for years and has become the lowest in the OECD nations.

• Deficit spending in the face of the above continues to rise.

• Major employers such as General Motors and Encana and many smaller companies have pulled out of Canada with the attendant loss of revenue and thousands of jobs at the same time.

In the last three years, in the face of these negative signals, the government embarked on an ideological global warming crusade which damaged our already stressed private sector.

Despite the fact that Canada accounts for only 1/3 of one percent of global CO2 emissions, to pacify the climate extremists, the government did the following:

• Shut down 3 pipelines (Kinder Morgan, Northern Gateway, and East West).

• Cancelled 2 and suspended a third project (Teck Resources, Hathaway Corporation, and The Northern Natural Gas).

• Passed bills 69 and 28 which makes new infrastructure projects virtually impossible.

These actions cost the economy billions upon billions in lost and forgone revenue that cannot be replaced, and according to the Fraser Institute, many thousands of jobs (35,000 in Alberta alone).

To add to our problems, the price of oil declined from $60.00 per barrel to $6.00. This struck a damaging blow especially to the provinces of Alberta and Saskatchewan and to the entire economy.

At the same time the federal government has added to its current $28 Billion deficit another $100 Billion in support payments to those ordered into isolation. As a result of these additions the federal deficit alone is forecast to be $150 Billion for 2020.

Given the condition of the economy before the corona virus struck, a recovery to normal and full employment is going to be an enormous challenge. Our economy is like a patient with a broken leg who also gets the flu. When the flu is gone the broken leg remains. The major obstacles to return the economy to the 2018 and 2019 state of normalcy are daunting but the main problems at least will be:

• Gaining the necessary private investment in Canada under these circumstances will be critical for a recovery and very unlikely.

• Because of our enormous deficit, government stimulus will be limited, and because of the debt, interest costs will be a major burden.

• Since small businesses account for 86% of the labour force employment, and given the earlier damage small businesses have suffered, the hiring back of those now unemployed, will likely be very slow and protracted.

• Any attempt to raise taxes to reduce the deficit on already over taxed companies and consumers is not possible.

These are some of the potential roadblocks to a return to a normal economy. Hopefully this immediate crisis will not prevent us from rethinking and reforming our current economic policy for one that leads not to a welfare state, but to a free, secure and prosperous Canada.

George MacDonell
April 2020

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