Justin Trudeau wants his fans (and leftish voters) to think he’s nothing like Stephen Harper. Stylistically, that’s true. And the current prime minister is as nonchalant about deficits as his predecessor was obsessed by them.
But if you think about it, their headline economic policies aren’t so different.
Team Trudeau’s favourite sop to the middle class, the Canada Child Benefit, is a modified version of a big present that Harper gave to voters with children. The Liberals cut the small-business tax rate to nine per cent, fulfilling a Harper promise from the 2015 campaign. Canada was among the first group of countries to ratify the Trans-Pacific Partnership because the party that Harper led for a decade allowed rapid passage of the enabling legislation.
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And now Trudeau appears set to copy another Harper strategy. Bill Morneau, the finance minister, told an audience in Aurora, Ont., on Jan. 22 that he wants to do something to make housing more affordable for millennials, according to a report by the Canadian Press.
Vintage Harper! Three weeks before Election Day in 2015, he promised to add 700,000 new homeowners, essentially by increasing the maximum amount first-time buyers could borrow from their Registered Retirement Savings Plans by $10,000.
It was a bad idea that would have put more upward pressure on real-estate prices and encouraged even more households to take on more debt than they could afford. Yet the anti-Harper government appears to want to do something similar.
“I’m all for initiatives that help young people afford homes, but things like this make me skeptical that it’ll actually make a difference or outright fearful,” Francis Fong, chief economist at Chartered Professional Accountants Canada, said in one of 19 consecutive tweets on why it’s generally a bad idea to create incentives to borrow when none are needed.
Morneau didn’t elaborate on what he might do to assuage millennial angst over how all the best addresses in Vancouver and Toronto are being grabbed at exorbitant prices by data scientists, bankers and global plutocrats. Because make no mistake, those are the millennials that have his attention; home prices in places such as Moncton, Winnipeg and Edmonton are no more out of reach than they ever have been, according to various surveys of housing affordability.
It will be lost on none of you that Vancouver, Toronto and their environs form the foundation of the current government’s political base. When the Liberal caucus gathers, the discussion surely is regularly hijacked by tales of woebegone home shoppers, because so many of those members of Parliament represent two of the most expensive housing markets in the world.
Because we demand evidence that our elected representatives are working on our behalf, and because we are among a handful of societies that are obsessed with property, politicians end up feeling compelled to make the cost of owning a home “cheaper.” Since there tends to be too little supply to keep up with insatiable demand, these policies end up subsidizing buyers who don’t need the help, freeing them to join bidding wars. If you think this tinkering is mostly harmless, let’s review how we got here.
In 2008, the global economy crashed. The Bank of Canada dropped interest rates to the edge of zero, inviting Canadians to help with the recovery effort by taking out a mortgage. This created a feeding frenzy in Vancouver, Toronto and some other big cities where fundamental demand was already strong. Banks were happy to help their clients keep up with the sky-high prices, as most of the risk was backed by the federal housing agency.
Governments, especially the one in Ottawa, were supposed to give the central bank a hand. Their job was to replace private investment by running large, short-term deficits. The fiscal authorities also were supposed to use their regulatory and taxing powers to keep borrowing from getting out of hand.
They got the spending part right, but the politicians were reluctant to make it more difficult for voters to live out their dreams of owning a home. In 2015, Joe Oliver, the finance minister, rejected proposals by his department to restrain excessive borrowing, even though the price of a typical home in Vancouver and Toronto had breached $1 million, Bloomberg News reported after the government lost the October election.
To his credit, Morneau implemented measures to keep weak borrowers from buying too much house. But the damage was done. Now there is talk of a consumer-led recession. That seems unlikely, but it can’t be ruled out. Some of the best research on the causes of the financial crisis found that debt binges like the one we’ve been on tend to precede economic slumps.
But again, when it comes to regulation, the current government isn’t so different than the previous one. Morneau refused to yield control of regulatory policy to an independent body, as the International Monetary Fund and others have been urging Canada to do for years. The Reuters news agency reported on Jan. 25 that federal regulators were considering rule changes that would subject unregulated mortgage lenders to the same standards as the big banks. The idea was to make the financial system more crisis-proof.
A few days later, Morneau told reporters in Ottawa that he was planning no such thing. Of course he’s not; we’re nine months from an election and such a requirement would make it harder for millennials to buy a home. Vintage Harper!