The government will present its Budget 2021 in April. Let’s hope it focuses on Canada’s economic recovery, rather than trying to quickly raise money through new taxes to help pay off the national debt.
It is not news to anyone that 2020 was a tough year for virtually every sector of the economy, including the automotive sector.
Vehicle sales were down almost 20 per cent, which dwarfs the decline in the market — even during the financial crisis of 2009. Vehicle production in North-America was also hit hard, as assembly plants shut down and the global automotive supply-chain was heavily disrupted as a result of COVID-19. Similarly, the global shortage of semiconductors remains a serious concern for vehicle production and inventory levels in 2021.
As the federal government is set to release its first budget in two years, it needs to strike the right balance between providing ongoing support to businesses that are still struggling from the crisis, investing in economic recovery, and keeping the national debt at a sustainable level.
Since we are seemingly at the tail end of the crisis with the vaccine rollout ramping up, the government may be tempted to introduce new taxes as a means to raise more revenue for debt-servicing post-crisis, but now is certainly not the time for any new taxes.
There is a considerable amount of excess savings in the economy waiting to be unleashed in this low-interest rate environment.
Economic recovery at this stage is fragile, and while it may appear that the COVID hurricane is passing and the sky is clearing up, strong headwinds continue to blow. New taxes, direct or indirect, will have the opposite effect on government ability to raise revenue post-crisis. It will slow economic growth and put an extra burden on businesses struggling to recover and dampen the recovery for many sectors of the economy, including the automotive industry.
The focus of the budget this spring should be on recovery and on supporting the economy.
There is a lot of optimism in the air regarding the Canadian economic outlook for 2021. Several factors indicate that recovery will be strong over the next couple of years. The vaccine rollout is in full gear, and only when we hit a critical mass of vaccinated people over the next couple of months will the economy shift gears towards a full recovery.
Strong economic growth post-crisis in the U.S. driven in part by the massive stimulus package introduced by the Biden administration will increase demand for Canadian products and stimulate the economy.
Lastly, there is a considerable amount of excess savings in the economy waiting to be unleashed in this low-interest rate environment. Households in Canada have accumulated more than $200 billion in savings, as result of changes in consumption patterns throughout the crisis.
All of these encouraging factors, coupled with targeted recovery measures for industries that were hit hard during the pandemic, will boost economic growth and accelerate recovery.
The most efficient way for the government to raise revenue post-crisis and to keep the debt at a sustainable level following a recession of this magnitude is by bringing measures to encourage recovery and grow the economy — thus, increasing revenues and growing the tax base.
For the automotive sector, the budget needs to include programs to boost demand such as a scrappage program. A vehicle is a big-ticket item and for most households it is the second most important purchase after buying a home.
During the crisis consumers sat on the sideline in droves, delaying their purchase for big-ticket items such as cars and waiting for the COVID storm to pass. We need to bring them back to the market, and a vehicle scrappage program will boost consumer confidence and stimulate demand for vehicles post-crisis. It will also help reduce greenhouse gas emissions by replacing older, more polluting vehicles with newer and greener ones.
All this said, Canada and the rest of the world are in the midst of a crisis unseen in recent history and economists agree that the recovery will be slow and choppy, with certain sectors recovering faster than others. The focus of any government at this juncture should be on supporting the economy and on investing in the recovery, not on taxation.
New taxes of any kind during a recovery period will amount to slamming the brakes on a car going at full speed on the freeway. The consequences could be devastating for the economy and jobs in Canada. As the driver of Canada’s economy, the auto industry will be at the forefront of this recovery — and needs to be supported.
