We have just sent our second letter to Parliament in attempts to begin steering the conversation towards an understanding of the declining purchasing power within Canada. This update demonstrates how the new proposed budget is an overall detriment to the Canadian economy.

 I encourage everyone to take a read to get a better understanding of the true challenges the overall proposed 2024 Canadian Liberal budget faces.

Thank you for your continued support! We are going to continue doing everything we can before June 25th, 2024 to help the government understand the true impacts of this proposal.

The letter is copy and pasted below. 

Addressing Canadian Purchasing Power

Evaluating the Impact of the 2024 Proposed Liberal Budget on Canada's Already Diminished Purchasing Power.

June 03, 2024
Author: Thomas Hulsmans

Dear Honorable Members of Parliament,

I hope this message finds you well. In this update I aim to communicate that the removal of the capital gains tax and re-evaluation of the 2024 Canadian Budget is far more than just an opinion or demand but in fact, a necessary step to ensure fiscal responsibility and prosperity for the greater Canadian economy.

Key Issue: Declining Purchasing Power

Current Situation: Over the past fifty years, the purchasing power of Canadian households has significantly declined (World Bank). Despite nominal increases in wages, the real value of income has not kept pace with inflation and the rising cost of living. For instance, the average family income in 1974 was $14,895(Income Data, Unadjusted). Adjusted for inflation, this would need to be approximately $154,000 to $209,000 today to maintain the same standard of living. Currently, the median household income is around $75,000(Alberta 2023), highlighting a substantial decrease in purchasing power by a factor of approximately 4.12.

This has had some consequences, Scott Galloway illustrates the data in the following video titled, America’s War on the Younger Generation which describes a 59% decrease in birth rate, less available education, and in general a continued escalation of mental health symptoms amongst younger generations (Poll 19 MHRC). This is an indirect exploitation and theft of the ability for the younger generation to have homes, start families, get educated, and save for the future. 

We need our leaders more than ever.

Given this decrease, in both birth rate and purchasing power, it should be apparent that it is in our best interest to focus collectively on increasing purchasing power for everyone in the country. This will lead to more profits for Canada and her institutions as well as more economic prosperity for all even if it means some policies in the short term that level things out. It's time to be responsible.

Impact of the 2024 Budget on Purchasing Power

Raising the National Debt Ceiling: The 2024 proposed Liberal budget includes raising our national debt ceiling by another $508 billion, from $1.83 trillion to $2.33 trillion to accommodate the projected borrowing needs for 2024-25. This ensures the government can refinance maturing debt and manage new borrowing requirements. (Budget Canada) This occurred back in 2020 as well (BNN).

Currently, we pay $20 billion annually to service our existing debt. This number will only increase after adding $508 billion to the debt, raising debt servicing costs significantly. (Fraser Institute)

When it comes to purchasing power, reducing debt is always a better option instead of raising it. Overinvesting in ideas without effective implementation is often the first critical mistake when creating new products or initiatives, we just end up spending more than we need to. For those who have read the book, The Lean Startup, businesses are supposed to stay lean, growing as they add value, balancing their books properly, and avoiding unnecessary expenditures. The government must adopt this approach or an approach like this to ensure efficient use of taxpayer money. 

We have already seen that the Liberal government has invested in several initiatives that have faced criticism for inefficiency and cost overruns, such as the ArriveCan app and other similar projects. This is the time to make these programs lean and effective not to spend more.

The United States Government has employed lean startup ideas. The Federal Chief Information Officer of the United States, Steven VanRoekel noted in 2012 that he was taking a "lean-startup approach to government".

Capital Gains Tax Increase: Raising the capital gains tax, as proposed in the 2024 budget, will directly and indirectly decrease purchasing power for many Canadians. Higher taxes on investments can reduce the incentive to invest, impacting retirement savings and overall financial well-being. This policy is already discouraging entrepreneurs and small business owners, leading to fewer job opportunities and slower economic growth. Reduced investment means less capital available for business expansion and innovation, which are key drivers of economic growth and job creation. When businesses don't grow, wage growth stagnates, further impacting the purchasing power of Canadian workers.

Economic Data:
Sources and the detailed analysis around the following segment can be found here. This document also details how the budget does not create “fairness for every generation” but instead fairness for some.

GDP Growth:
Our GDP growth, which should be around 2-3% annually, has dropped to 1.1% over the past seven years, with a projected growth of only 0.7% for 2024, reflecting severe underperformance compared to expected standards. In comparison, other G7 countries have also faced challenges but have generally shown higher growth rates. For example, the U.S. is projecting 2.2% in 2024 to Canada's 0.7%. (Table A1.1 Budget Canada, BEA)

GDP Growth this low reflects a near stagnant economy, where things are not growing, inflation continues to rise but because our economy is not growing wages stop growing. Which means our purchasing power again takes a dip. Getting our GDP back to 2-3 and even 4% levels is necessary to ensure birthrates within the lower generations do not continue to drop.

Disputing the 0.13% Claim:
The claim that removing the capital gains tax will impact only 0.13% of Canadians overlooks several key points:

Wider Economic Impact:
The removal of the capital gains tax can have broader economic consequences, including job creation and support for small businesses. Lowering or removing the capital gains tax can incentivize investments in startups and small businesses, leading to job creation across various sectors.

Small Business Consequences:
Small businesses are the bedrock of our economy. If business owners can retain 16% more of their income simply by starting their business two hours from Toronto, in Buffalo, they will do that and it is already happening: The Exodus of Capital, Talent, and Entrepreneurs from Canada - Benjamin Bergen

Impact on Savings and Investments:
Many Canadians, especially those nearing retirement, rely on investments for their financial security. Higher capital gains taxes can reduce the incentive to invest, impacting retirement savings and overall financial well-being.

Given these considerations, the percentage of Canadians indirectly impacted by changes in capital gains taxes is significantly higher than the 0.13% figure often cited. When accounting for inflation, CPI, GDP growth, and broader economic factors, it is reasonable to estimate that at the minimum at least 20-30% of Canadians will be directly or indirectly impacted by this tax increase. This includes those with investments, small business owners, entrepreneurs, and those relying on investment income for retirement.

The Middle-Class Struggle:
Consider the current middle-class reality:

Overall, the estimated annual income needed to afford a home and raise 2-3 kids across Canada ranges significantly, but a figure around $150,000 to $200,000 annually is a reasonable estimate for many regions. (Savvy New Canadians, Wealth Awesome).

Policies Needed To Improve Purchasing Power:

Essential Good Inflation Measures:

Price Controls: Implement measures that limit the amount companies can increase prices on essential goods as a reflection of our CPI. Preventing corporations from raising prices on life essentials while the economy stagnates is beneficial for everyone involved.

Anti-Home Commodification Measures:

Price Limits: Limit the price that the value of a home can reach as a reflection of our CPI and/or real GDP growth. This prevents excessive speculation and keeps housing affordable. This also detracts from treating homes like they are an investment asset and keeps them affordable for all generations. 

These are standard policies that governments frequently implement to ensure prosperity for all parties involved. Without these measures, the burden on the middle class will only grow, making it harder for families to sustain their quality of life, directly causing less profits for Canada and its institutions. The reality is, if current trends continue, the new middle-class threshold could soon be as high as $250,000 in some areas sooner than we think.

Call to Action
Focus on Purchasing Power:

The conversation must prioritize increasing the purchasing power of Canadians. This involves:

Tax Reforms: Avoid raising capital gains taxes which discourage investments and savings without understanding its broader effect on purchasing power.

Reduce Debt: Ensure effective spending of resources before reaching for more. Implement prudent fiscal policies to manage national debt without excessively increasing debt servicing costs.

Economic Growth Policies: Adopt measures to stimulate GDP growth, such as supporting innovation, reducing regulatory burdens, and investing in key sectors.
Addressing these aspects in the budget is both reasonable, prudent, and informed. Given the current economic conditions in Canada, it's a necessary step to ensure fiscal responsibility. It's just one of many questionable allocations of spending within the Canadian government. If this change is not made, it could seriously impact the purchasing power of our dollar.

Final Note: I do not intend to be alarming, but to highlight the importance of these issues for the future well-being of all Canadians.

Please take action to create policies that improve our overall purchasing power. Our economic prosperity as a country is on the line.

Thank you for your attention to this critical matter.

Sincerely,

Thomas Hulsmans
Business Owner and Canadian Entrepreneur

Sources:
Statistics Canada: Income Data
Fraser Institute: Debt Servicing Costs
Budget Canada 2024: Government Projections
World Bank Data, See attached CSV to conduct your own Financial Projections
Scott Galloway, America’s War on the Younger Generation
Poll 19 Mental Health Research Canada