Jack Mintz: Incumbent governments are losing power for good reason

Voters already angry about price increases are in no mood for the big tax hikes that would be necessary to make progress on climate goals

Published Nov 15, 2024  •  Last updated 0 minutes ago  •  4 minute read

Prime Minister Justin Trudeau speaks during a Liberal Party fundraising event in Vancouver on Nov. 8. Photo by Ethan Cairns/The Canadian Press files

First-year economics describes the guns/butter trade-off. When resources are scarce, more for defence means less production of butter.

Today, scarcity is affecting butter prices. As the Financial Times put it in its print version, “butter thefts reveal Russia’s soaring prices as Putin buys more guns.” As this paper has reported, we’ve had large-scale butter heists in Canada, too, so far unsolved. Even MSNBC’s Joe Scarborough is shocked that in the U.S. a pound of butter is now US$7 not US$3.

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After the pandemic, governments forgot that money is not manna falling from heaven. In 2020, they paid generous transfers to “fill the hole” and avoid a depression. But Canada, the U.K., U.S. and some others did more than fill the hole: they built a small mountain of subsidies on top of it. Average household income rose during the pandemic even though fewer people were working.

The subsidy binge continued into 2021, stoking demand further. But inflation outpaced income for the next two years. As the OECD reported Wednesday, Canada is the “sick man” of G7 countries. Over the past nine quarters our “growth” in real per capita household income has averaged -0.18 per cent per quarter. Germany is next lowest, eking out a 0.07 per cent quarterly growth rate over the same period.

Falling real incomes and policy errors that stoked inflation have been major reasons why this year 10 incumbent governments have either been booted out of office or at least lost substantial support. In Europe and the U.S., open-ended immigration causing wage pressures, congested public services and rising housing prices have also been important.

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Among the 10 governments the average loss of support was seven per cent, the most since 1900. In the U.K., Labour trounced the Conservatives. Trump-led Republicans swept the White House, Senate and House. In India, France and Japan governments kept power but lost their majorities in parliament.

Expect more of the same in 2025. Germany goes the polls Feb. 23.  With the economy stagnant, Olaf Scholz’s Social Democratic-led coalition is at only 16 per cent in the polls and unlikely to survive. In this country, the Trudeau Liberals remain 20 points back as the clock ticks down on next year’s federal election.

You would think governments might have learned the lessons of scarcity in recent years. But apparently not. Over-the-top spending proposals on climate change are now the focus at COP29 in Azerbaijan. To achieve 2030 climate reduction targets requires, the UN estimates, spending of US$1.8 trillion in developing and US$2.5 trillion in developed economies. Fat chance that fiscally constrained developed countries will come up with that kind of money.

Ottawa predicts economy-wide transition spending of $125 billion to $140 billion on climate finance every year until 2050. It has committed to $160 billion in tax credits and grants to be spent this decade. If climate policies gobble up tax revenues at this rate, what room will there be for defence spending, provincial health transfers or infrastructure? Or will Canadians be asked to pay billions more in taxes?

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So far, countries have been great at announcing GHG emission targets but terrible at hitting them. A cornucopia of emission-reduction plans has been announced but reductions aren’t happening. Since 1990 global emissions have grown by over half, from 37.8 gigatonnes in 1990 to 57.1 in 2023. Despite hundreds of billions of dollars of spending we are no closer to the two-degree target of 41 gigatonnes in 2030 than we were 10 years ago.

Are billions more in spending on climate finance really our best option? Canada is not expected to reach its declared target. Even if we did, at 1.5 per cent of global emissions we would have little effect on global weather systems on our own — though we would certainly succeed in slowing down our economy and making public services even less affordable.

The worst policy is to make our economy less competitive with punitive regulations and taxes: carbon taxes, oil and gas caps, no-more-pipeline laws, no more permits for liquefied natural gas, and clean fuel regulations. Given our engineering expertise, we should slash the huge subsidies and focus our scarce dollars on research into new technologies to combat climate change — as well as on expanding natural gas production, making our allies more secure, reducing global dependency on coal and generating economic growth and tax revenues.

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If instead the federal Liberals insist on staying all-in on climate finance and ignoring butter, they are likely to face the same fate as other governments have. Voters already angry about inflation are in no mood for tax increases, too.

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