Prime Minister Justin Trudeau has announced a $4.6-billion package of income-tested measures aimed at helping Canadians struggling with higher costs of living, at the same time insisting that the injection of new cash into the economy will not make inflation worse.
The three-part package includes new payments to uninsured parents to cover their young children’s dental costs, a doubling of the GST credit and a boost in rent supports.
Some of the funding for dental care and rent supports was included in the April budget, but more than $3-billion of the package is new spending that had not previously been announced.
The new measures are partly a response to public pressure on federal and provincial politicians to help people facing unusually high inflation. But economists are cautioning political leaders not to make price increases worse by adding billions in new spending into the economy.
“What we’re doing with these specific measures is targeting those most vulnerable, those who are most hard hit by the increases in inflation,” Mr. Trudeau said at the announcement in St. Andrews, N.B., where Liberal MPs were wrapping up three days of caucus meetings ahead of Parliament’s return this month. “They are also sufficiently targeted that we are confident that they will not contribute to increased inflation.”
The dental package and rent supports are elements of a March deal between the Liberals and the NDP that saw the latter party agree to support the minority government on key votes in exchange for action on a list of policy priorities.
Since then, the NDP has also been advocating for an increase in the GST credit – a program that provides quarterly tax-free payments to lower-income Canadians.
NDP Leader Jagmeet Singh praised the announcement Tuesday at a news conference in Thunder Bay.
“This is about respect and about dignity. We have forced this government to deliver,” he said.
New Conservative Leader Pierre Poilievre, who has repeatedly said that excess Liberal spending has contributed to current high levels of inflation, said Tuesday that the government’s package will make things worse.
“The problem with spending more money as the solution to inflation is that it simply pours more gasoline on the inflationary fire, and that is exactly what Justin Trudeau continues to do,” Mr. Poilievre told reporters in Ottawa.
Mr. Trudeau had initially planned to make the affordability announcement last week in Vancouver, but it was cancelled when the Queen died.
Scotiabank economist Derek Holt, who is the bank’s vice-president and head of capital markets economics, said in a note on Tuesday that “it seems sensible to assume” the Liberal announcement will add to inflationary pressures.
“Any belief that it will ease inflationary pressures must have studied different economics textbooks,” he wrote.
CIBC chief economist Avery Shenfeld said in a recent research note that “for fiscal policy, the customer is not always right.”
“In a period of high inflation and excess demand, cutting taxes or handing out cheques can add fuel to the inflationary fire, and make the job of a central bank that’s raising rates to cool demand all that more troublesome,” he wrote.
In a follow-up e-mail Tuesday after the government announcement, Mr. Shenfeld said the roughly $3-billion in new spending is a relatively small share of the economy, “and therefore not really large enough to impact total demand or inflation to a material degree.”
“What we need to avoid is piling on further federal and provincial announcements in a period in which inflation and too much demand is the issue,” he said.
Bank of Canada senior deputy governor Carolyn Rogers also addressed the relationship between fiscal and monetary policy in comments last week.
“People are really concerned about affordability. So there is a lot of pressure on governments to help, particularly people with low income,” she said. “So we understand that. Governments are weighing a lot of priorities. They have to balance a lot of things. We do need help on the fiscal side to get inflation down. It does need to be a joint effort. But we completely understand that there’s some pressure on affordability.”
The dental plan announced Tuesday, called the Canada Dental Benefit, falls short of the NDP’s expectations for an insurance-based system, but the government is presenting it as an interim move while officials work on the policy details for a longer-term plan.
Families with no dental coverage and incomes of less than $70,000 will be eligible for $650 per child annually. The amount drops to $390 if a family’s income is between $70,000 and $79,999, and $260 if it is between $80,000 and $89,999. Families with incomes of $90,000 or more will not be eligible for the program.
The government says the program will benefit about 500,000 Canadian children, at a cost of $938-million. For 2022, access will be limited to children under 12.
Families will need to apply through the Canada Revenue Agency and attest that they have out-of-pocket dental-care expenses and do not have insurance coverage. They will also need to acknowledge that they may be required to show receipts at a later date.
Applications are not yet open. The program requires the passing of legislation, and the government expects to have it in place by Dec. 1, retroactive to Oct. 1.
The Liberal and NDP deal said the new dental-care program would begin this year, and in 2023 would expand to cover children under age 18, as well as seniors and people with disabilities. The deal calls for the program to be fully implemented by 2025.
The government also announced a one-time top-up to the Canada Housing Benefit program, in the form of a $500 tax-free payment to low-income renters.
The government estimates that 1.8 million people, including students, will benefit. This part of the announcement carries a cost of $1.2-billion.
The third element of the package is a pledge to double the GST tax credit for six months.
The GST credit is based on net family income and is paid out quarterly. The benefits are indexed to inflation. Eligible people can currently receive up to $467 a year, and Canadians who are married or in common-law relationships can get as much as $612 annually. The program also pays up to $161 for each child under the age of 19.
The temporary doubling of the credit carries a $2.5-billion price tag. The government said it will apply to about half of Canadian families with children, and more than half of Canadian seniors.
The Globe and Mail, September 13, 2022