Five Key Issues Facing the Trudeau Government

In this post, Canada Fact Check takes a look at five key issues facing the newly elected Trudeau government for the period leading up to, and including, the early-Spring budget.

Infrastructure

The new Liberal government’s top priority will be to quickly implement its high profile infrastructure program.

Trudeau says a Liberal government will run deficits for three straight years and will double spending on infrastructure to stimulate economic growth.

According to a Liberal policy paper, the Liberal fiscal plan would see “a modest short-term deficit” of less than $10 billion for each of the first three years and then a balanced budget by the 2019-2020 fiscal year.

The policy paper suggests that over the next decade the Liberals would spend $125 billion on new infrastructure investment — about twice the amount the Conservatives had committed for infrastructure. Much of this new infrastructure would be financed through a new Canada Infrastructure Development Bank.

Liberal infrastructure investments would focus on three areas: public transit, social infrastructure such as affordable housing and child care, and environmental projects like clean energy.

Projects funded would reflect the priorities of the provinces and municipalities.

Middle Class Tax Cut

A second major Liberal fiscal plank is an initiative to stimulate the economy by means of a reduction in income tax rates for middle income earners funded by a new high-income rate.

The current top tax bracket starts on income over $138,586 with a rate of 29 per cent. Trudeau proposes to add a new tax bracket starting at $200,000, with a rate of 33 per cent. Liberals suggest this will raise about $3 billion, which they propose to re-allocate into a reduction of the middle tax-bracket rate from 22 per cent to 20.5 per cent, reducing the tax paid on income in the $44,700 to $89,400 range.

Child Benefit

A third major Liberal policy initiative is a new $22-billion Canada Child Benefit aimed at lower and middle-income families with children.

What will the proposed Liberal Canada Child Benefit do for families?

First, the proposed benefit would be geared to the level of family income. In other words, unlike the Conservative’s Universal Child Care Benefit (UCCB), the Liberal’s Canada Child Benefit is means tested.

For children ages 5 and under, maximum benefits would be $6,400 a year ($533 monthly). Payments would decline as incomes rise, and would be completely phased out at a family income of $192,000.

The maximum benefit for children ages 6 and over would be $5,400 annually ($450 per month) and would also fall with increases in family income. The benefit would be completely phased out at an income of $160,000/yr.

How will the Liberals find $22 billion annually to fund their initiative?

First, the Liberals would fold three existing child benefit programs into their new benefit: the National Child Benefit Supplement, the Canada Child Tax Benefit (CCTB) and the UCCB.

According to the 2015 budget, the existing child benefits total $18 billion per year, so $18 billion of the $22 billion is covered right off the start. And because the Liberals will get an additional $2 billion from cancelling the income-splitting Family Tax Cut, it would only take $2 billion more to reach $22 billion.

Pension Reform

Trudeau has pledged to help Canadian seniors with a promise to bolster the Canada Pension Plan (CPP) and increase incomes for low-income seniors.

How do they plan to do this?

First, the Liberal government would begin talks with the provinces on how to improve the Canada Pension Plan within three months of taking office. A key issue here will be how the CPP enhancement will fit with the Ontario government’s proposed Ontario Retirement Pension Plan. Ontario Premier Wynne has indicated that the election of a federal Liberal government willing to enhance the CPP may eliminate the need for an Ontario pension plan.

In addition to a CPP enhancement, the Trudeau pension program also includes a promise to restore the eligibility for Old Age Security and Guaranteed Income Supplement back to 65 (from 67), a new seniors price index to make sure those benefits keep up with rising costs, a 10 per cent boost to the guaranteed supplement for single low-income seniors, and a pledge not to cut the Conservative’s pension income splitting for seniors (while eliminating it for all others).

The Conservatives announced in 2012 that the age of eligibility for old age security would be raised from 65 to 67 — a change that would have been implemented gradually over six years beginning in 2023.

Trans-Pacific Partnership (TPP) trade agreement

A few weeks before election day, it was announced that Canada had signed on to the Trans-Pacific Partnership (TPP) trade agreement

What is the TPP?

First, Canada, U.S. and Mexico have long had special access to each other’s markets under NAFTA.

Instead of a group of three as under NAFTA, twelve countries would share in the advantages of TPP membership. Broadly speaking, the Trans-Pacific Partnership (TPP) is similar to NAFTA in that it involves pledges by the participating countries to reduce or eliminate tariffs on a wide range of goods and services. It also sets out rules for resolving disputes and provides a modest attempt to set some minimum employment standards in the twelve member countries.

The NDP and the labour movement strongly oppose the TPP agreement while the Conservatives and most business leaders strongly support it. The Liberals have generally been supportive of TPP (and “free trade” more generally) but officially are waiting to see the fine print before making a final decision on whether to support it.

While at first Harper promised to release the full text before the election, the release of the final legal text has been held up because of last minute fine tuning.

While governments can implement transition programs to cushion vulnerable sectors from the harmful effects of trade agreements (witness the Harper government’s announcements on dairy and auto supports), Parliament can only vote up or down on the content of TPP.

TPP will likely be debated in Parliament in the early months of the new government and this will not be a comfortable debate for the Trudeau government. In as much as possible, the newly elected Trudeau government would like to burnish its progressive credentials and stay onside with the labour movement. Unfortunately for the Liberals, support for the TPP will be a red flag for the labour movement – particularly for Unifor, the union representing auto workers.

This is because the new agreement contains provisions that could cost jobs in the auto sector. Current rules under the North American free-trade agreement (NAFTA) require that 62.5 per cent of auto parts come from North America in order to avoid tariffs.

The new “content” thresholds for parts under the TPP are significantly lower and these lower domestic content requirements could cost jobs. Moreover, they differ for different kinds of parts. A 45-per-cent level is required to be considered duty-free for some parts and 40 per cent for other components. Included in the 45-per-cent or 40-per-cent levels are engines, transmissions, chassis components, bumper systems and suspensions.

Canada Fact Check will be providing in-depth analysis of developments related to these and other key issues facing the new Trudeau government in the weeks and months ahead. Don’t miss a post and be sure to register below to get breaking news delivered free directly to your inbox.

___________________________________________________________________________________________________