Planning for the Next Crisis

It was announced this week that Justin Trudeau’s government is giving $300-$500 each to 6.7 million Canadian seniors, at a total cost of $2.5 billion. We seniors will accept the money, of course. We don’t have a choice. For most of us, it will automatically be deposited into our bank accounts. But how many of us among the 6.7 million seniors can be said to really NEED this money?

Oh, some of us do, for sure, but those individuals likely need more than that every year and not just in a pandemic year.

Furthermore, we should be clear that Trudeau is doing this with borrowed money. That is, he is not so much giving us this money as lending it to us. We will have to pay it back. Well, not us individually, of course, but all of us taxpayers collectively. And we will have to pay back not just the $2.5 billion that Trudeau is giving to seniors but also the hundreds of billions that he has “given” to other Canadians since the COVID-19 pandemic started. More likely, we and our children and grandchildren will be paying interest on this debt for many generations to come. And it is not as if seniors will use the money they have been given to stimulate and help restart the Canadian economy. With stores and so much else shut down, there is little to spend it on. Many of us may simply put it in the bank and sit on it. At least, until our taxes come due.

Leaders, particularly political leaders should always be looking one step ahead—at least one step ahead and preferably more. This is something that has not generally been happening. In this crisis, Canadian leaders have done better than some leaders in some other countries, but not much. The fact is that we have often been one step behind rather than one step ahead. We are reacting rather than planning. Consider:

• In the good economic times of the last five years since Justin Trudeau was first elected Prime Minister, the Canadian government should have been trying to slowly pay down the government’s debt and save for a rainy day. Instead, the Trudeau government racked up an additional $100 billion in debt. When the Trudeau Liberals took power, the annual budget was close to balanced, but there was an accumulated debt of over $600 billion, equal to total government revenue for about two years. After five years, the accumulated debt had risen to over $700 billion. This shortsighted plan to buy votes in the present at the expense of fiscal sustainability in the future was inexcusable.

• Despite the experience of previous epidemics such as SARS, Canada was not prepared for a pandemic. We did not have a sufficient quantity of plans and equipment ready to fight the epidemic. For personal protective equipment, we were (and still are) dependent on cheap imports from the very country which is the source of many recent outbreaks.

• Canadian leaders were slow to react to the pandemic. They did not close the border and implement isolation orders fast enough to prevent COVID-19 from infecting tens of thousands of people in Canada.

• When Canadian leaders did close the borders and lock down much of the country, they did so without considering the huge financial cost of shutting down the economy.

• Once the lockdown was in place, the Canadian government quickly realized that it would have to replace the lost income or many Canadians would be forced to stop isolating and try to return to work. So, the Trudeau government has been eagerly “shoveling money out the door.” Justin Trudeau has been treating this crisis as a never-ending election campaign. Every morning, he makes a “motherhood” speech, mouthing platitudes and making a new spending announcement. This has been so successful that he has convinced Canadians that there is an endless supply of federal money. Every time he gives money to one group, three more groups line up with their hand out to get their share.

In the current crisis, everyone is convinced that it is necessary for the federal government to spend money quickly, so convinced that no one is even thinking about whether it is all being spent wisely and no one is thinking about how we are going to pay it all back. We are told that the time for thinking about that will be after the crisis is over. But the whole point of leadership is that leaders should be looking at least one step ahead. Anyone can respond to a crisis by spending money. Now is precisely the time when leaders should be planning what to do once the pandemic is over. They should be taking steps now to deal with the next crisis, not just the current one.

And the next crisis is most likely debt. Everyone knows that the federal government is currently running a large deficit, but how large? To put this into perspective, Canada’s Gross Domestic Product (GDP, the total of all economic activity in the country has been amounting to somewhere around $1.7 to $1.8 trillion, a little less than $2 trillion a year. The federal government accounts for a large chunk of that. The federal government budget (proposed, not actual) for the 2019-2020 year was $355.6 billion, but revenues were projected to be less than that, $338.8 billion, resulting in a deficit of about $16.8 billion. This has been typical of this government. In their five years in power, the Trudeau government has been running annual deficits of close to $20 billion.

With the arrival of the COVID-19 pandemic and the lockdown, all of that changed. The government has announced new spending programs amounting to hundreds of billions of dollars. At the same time, federal government revenue has been dropping as businesses and individuals lose income and therefore pay less in taxes. Because of this, a few weeks ago, the Parliamentary Budget Office estimated the 2020-2021 deficit to be over $250 billion, and it has been rising rapidly with new spending announcements since then. In fact, things are changing so quickly that no one (including the federal cabinet apparently) knows exactly what spending and revenue will actually be. The government has yet to present a revised budget for the year we are in. The annual deficit is quickly reaching the same level as the entire government budget for last year.

And next year is not going to be much better because the pandemic and lockdown are expected to continue. Even if a vaccine is developed and things return to normal the year after that, things won’t return to normal. By that time, many Canadian businesses may have gone bankrupt. The tourist industry, the oil industry, and many other industries are struggling and will need years to recover. It will be terribly difficult for us to climb out of the recession we are in.  Government spending will have to remain high, and government tax revenue will remain low. The government will be under pressure to stimulate the economy but will be unable to do so because it will already be deeply in debt and won’t have the money.

Looked at another way, at the beginning of this year, the Canadian government debt, accumulated over decades, had risen to over $700 billion. But in the next two or three years, at the current rate of spending, that astronomical $700 billion could have doubled or more. The interest payments on our current debt are about $30 billion a year. Three years from now, interest payments will likely have risen to over $60 billion a year, even with record low interest rates. That means that 20 percent of government revenue could be spent just paying interest on our debt. That is over $60 billion a year sucked out of a Canadian economy that will already be struggling mightily. Since there are about 37 million Canadians, almost $1,000 in taxes per Canadian goes to pay interest every year. In three years, the amount will be $2,000 or more. For a family of four, the annual interest charges will amount to $8,000. That is simply not sustainable.

Now is the time to plan for the next crisis. Restructuring should already be taking place. One place to start would be to slash the high salaries of politicians and top-ranking bureaucrats. Another step would be to analyze more closely what is being spent now to see how much of it is necessary and is being spent wisely. Another step would be to prepare Canadians for the sacrifices and hardships that inevitably lie ahead instead of handing them more money and blithely assuring them that everything will be fine. It won’t be.

We’ll All Get through This Together

In his daily media briefings, Prime Minister Justin Trudeau has taken pains to reassure Canadians that all will be well. “Don’t worry. We will all get through this together,” is the message he puts out, and the message is endlessly repeated by others. Don’t worry about paying your rent or your mortgage—the government is developing solutions for you. Don’t worry about losing your job—the government will replace your income. Don’t worry about your business—the government will provide loans and grants and tax rebates to see you through. Don’t worry about being short of money—the government is sending extra money your way. Don’t worry about getting sick with COVID-19 or anything else—the government will provide the hospital beds, the equipment, and the human resources to treat you.

And there you have the promise of the modern welfare state—the government will solve all your problems.

The reality is that government can’t solve all problems. There are economic forces and social forces and diseases and natural disasters that are beyond any government’s control. A government can (and should) mitigate the effects of a disaster, but often it can’t prevent the disaster or completely shield its citizens from the negative consequences. 

While reassurances might calm public fears and prevent panic, promising that everything will be fine will not adequately prepare us for what might lie ahead. It will not steel us for the sacrifices many of us will have to make. It will take courage for workers in essential services to keep working at the risk of their own lives; bland assurances will not work for them.

The truth is that we are not all going to get through this together. We are not all going to come out the other side unscathed. Some of us are going to die. More of us are going to be sick. Some of us are going to lose our jobs, permanently. Some of us are going to be short of food and other necessities. Some of us are going to lose our houses and our homes. Some of us are going to lose our businesses. Some of us are going to lose our savings and our pensions. There will be strains on our social fabric. Many of us will suffer from isolation, boredom, poverty, depression, anxiety, domestic abuse, and mental illness. Although not as serious or as longlasting as some crises our ancestors faced, this crisis will have costs greater than any government can fix.

Does this mean that we should not all pull together to get through this, to love and help each other, to practice self-isolation and social distancing, to minimize the damage as much as possible? Absolutely not. We should do all of those things and more. We should do all we can to help and to alleviate suffering. That is the only way any of us will get through this at all.

But we should go into this with our eyes open. There will be suffering and pain and loss. We are not all going to get through this unscathed. Sacrificial love will be needed. In another crisis, a much more serious crisis, Winston Churchill promised the British people: “I have nothing to offer but blood, toil, tears and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering. You ask, what is our policy?…It is to wage war, by sea, land and air, with all our might and with all the strength that God can give us; to wage war against a monstrous tyranny…You ask, what is our aim? I can answer in one word: It is victory, victory at all costs, victory in spite of all terror, victory, however long and hard the road may be; for without victory, there is no survival…I take up my task with buoyancy and hope. I feel sure that our cause will not be suffered to fail…I feel entitled to claim the aid of all, and I say, ‘Come then, let us go forward together with our united strength.’”

Reflections on a Pandemic

Unique world events offer a unique opportunity to learn new lessons. Here are a few we have had an opportunity to learn recently.

1. It’s a small world.  The COVID-19 pandemic has dramatically demonstrated how interconnected the modern world is. A virus from a remote part of China has reached Canada (and almost every other country in the world) through multiple diverse routes. We can no longer pretend that what happens in one place does not matter to those of us in another place. As John Donne observed over three centuries ago, “No man is an island, entire of itself; every man is a piece of the continent, a part of the main…Any man’s death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bells tolls; it tolls for thee.”

2. It is a rich world we live in. Consider the closures and cancellations that have occurred. Sports, both those we enjoy as spectators and those we enjoy as participants. Concerts. Plays. Movies. Church services. Museums. Historic Sites. Swimming pools. Skating rinks. Recreation centres.  Restaurants of all varieties. Exercise classes. Schools. Art galleries. Libraries. Bookstores. Ski hills. Planetariums. Zoos. Nature walks. Drop-in centres. Social gatherings. Game nights. Parties. Many of these things are now being denied to us, and they are things that we have often taken for granted. Our temporary loss of these things should remind us of how blessed we have been, and we should be grateful.

3. There is much that remains. Despite its flaws, we have a medical system that is widely accessible; it offers medicines and treatments and knowledge that were not even thought of just a few centuries ago. We should perhaps also be reminded that just as the virus has spread over the world, so also can treatments and vaccines and knowledge be spread, as we learn from each other’s experience. We have governments that, despite their flaws, provide a coordinated effort to deal with plagues and other disasters and that provide law and order. We have a well-developed commercial system that makes food, clothing, and abundant quantities of many other goods from around the world readily available to us. We take it for granted that if we need something, we can simply go to a store and buy it. And, no matter how many churches close, the Church remains, for God is not frightened or hindered by any virus.

4. We can slow global warming. We human beings are being given a golden opportunity to reduce our carbon footprint. The reductions in travel, work, and manufacturing will allow many countries to meet their carbon reduction goals, at least temporarily. But we may also be realizing that this is coming at an enormous economic cost, which will definitely increase human suffering. Going green is not as easy as environmental advocates sometimes naively assert.

5. Social distancing is unnatural. Human beings are social creatures. From the beginning, God said, “It is not good for the man to be alone” (Genesis 2:18). Social distancing and self-isolation have seemed shocking to us. They remind us of the many social interactions that have been available to us. Again, being denied social interaction reminds us of the great blessings of living in society, in families and neighbourhoods and communities and nations, and we should be grateful for that opportunity.

Dangerous Disease, Risky Response

I am a senior citizen with asthma. Therefore, I belong to the “at risk” group. Still, it is unlikely that I will contract COVID-19. It is even less likely that I will die from it. I am not greatly worried. I know that, if not COVID-19, something else will almost certainly kill me sometime in the next couple of decades.

What I am currently more concerned about is the response to COVID-19. Cruise lines have shut down. Airline schedules have been reduced. Sporting events (and whole seasons) have been cancelled. Concerts have been cancelled. Movie filming and movie releases have been postponed. Political rallies have been cancelled. (At least, there is one positive development.) Vacations have been cancelled. Religious services have been cancelled. Schools have been closed. Border restrictions and even travel bans are in place. Workers with the sniffles have been told not to come to work.

The cancellations and closures are meant to be temporary, but there is no guarantee that the crisis will have passed, no likelihood that the disease will have been eliminated, in a month or two months or even two years. Temporary closures could be semi-permanent.

All of these measures are considered necessary and worthwhile in order to contain the spread of the virus. That is a laudable goal and worth it if the measures are successful. However, it is still an open question if these measures will be successful. Infected people can spread the disease before symptoms appear, and it is likely that the disease has already spread to people who have dismissed it as a cold or the flu and who have never been tested.

As well, the response will not be without significant costs and risks. Although the statistics proving it will not be compiled for weeks, it is a good supposition that the response to COVID-10 has created, or will create, a global recession. It is an obvious conclusion and likely inevitable. Whole industries cannot be shut down without it having an effect on the economy.

I am not worried about professional athletes missing a paycheque. It is a different story for the ticket takers, ushers, concession workers, taxi drivers, and other support staff. It is also a different story for the corner stores and small and large businesses that are patronized by these lower level workers.

As is usual, the recession will hit the hardest those least able to deal with it. Some of those currently employed are living paycheque to paycheque. Some who lose their jobs will be unable to pay their rent or their mortgage and will become homeless. Some will not be able to buy their regular medication. Some will not be able to buy enough food. Some will postpone dental work. Some will become depressed and turn to alcohol, drugs, and suicide. As businesses and transportation networks shut down, some needed supplies might no longer be available. Interrupted educations might never be resumed, and that will have long-term consequences. Given the fact that, as of this writing, only one Canadian has so far died of the disease, it is quite possible that the recession will kill more people than COVID-19.

And that is just in affluent countries. The impact in Third World countries will be worse. Most of the workers on cruise ships come from the Third World and depend on that income to support their families. Many Third World countries depend on tourism and on the ability to sell their food and raw materials to wealthy countries. 

The Canadian government has promised to eliminate the waiting period for Employment Insurance for workers who lose their jobs or are laid off due to COVID-19 and also to assist companies which have been seriously affected. Of course, it will be difficult to distinguish workers laid off because of the virus from workers laid off because of the resulting economic slowdown. They are victims of the disease as much as the others. Further, Employment Insurance payments are only a partial replacement for employment income. And the government’s $1 billion commitment will be grossly inadequate to counter the economic downturn. Much more will be needed.

Where will the government get the money for all of this? From taxing the income of the unemployed workers and the profits of failing companies? The government can only give out what it takes in from the private economy. The Canadian government can borrow money, of course, but it has already been running massive deficits for several years, and there is a limit to how much lenders will be willing to risk.

COVID-19 is a serious and lethal problem. The cure just might be as bad as the disease.

Trust and Cooperation

A few months ago, I was “invited” by Statistics Canada to participate in a “Survey of Financial Security.”

I have always voted in elections, completed my income tax returns, and filled in my census forms. I have nothing to hide. I have even worked as a census taker. But, even so, the scope of this survey seemed unusually intrusive, and I felt uncomfortable with it.

When the government representative phoned to set up an interview to complete the survey, I asked some questions. When she clarified that I was being “invited” to participate and I was not legally required to do so, I politely declined the invitation. I explained that since the prime minister had recently been accused of breaking the law (by interfering in the judicial system to stop the prosecution of SNC-Lavalin), I felt uncomfortable providing the information. The woman explained that the survey was being conducted by a government agency rather than by any particular political party and that my personal financial information would be kept confidential.

However, I felt that if the prime minister could intervene in the judicial process to help some criminal friends of his party avoid prosecution, which he was not legally allowed to do, how could I be sure that he and his colleagues would not also access my personal information, which he was also not legally allowed to do?

Furthermore, the actions of leaders have a profound effect in establishing what is and is not permissible and appropriate. That is, rot at the top will soon permeate a whole organization. If the prime minister can apparently break the law with impunity, then those at the lower levels of the bureaucracy may conclude that it is also acceptable for them to break the law.

In particular, how far could I trust the nice lady who wanted to come to my house and spend 45 minutes combing through the fine details of my finances? For sure, she had been vetted and deemed trustworthy by the government. But then I considered that a majority of Members of Parliament had voted to say that it was perfectly alright for the prime minister to intervene in a judicial process and had voted to block all attempts to investigate his actions. How could I trust her if I could not trust them?

So, I declined. I did not change my mind when the government sent me another letter telling me how important my participation was in order to improve “understanding the social and financial issues facing Canadians today” and to help guide government policy in a long list of areas. I declined again when the nice woman phoned to see if I had reconsidered my position. Besides what I felt was an intrusion into my personal finances, I had also begun to wonder whether the information would in fact be used to guide government policy. I suspected that government policy would more likely be shaped, not by solid research, but by the latest ideological fad or vote-attracting gimmick.   

I have since pondered what was behind my decision. I confess I felt some regret and sadness at having refused to participate since I had always fulfilled my civic duties before. Was I just using this opportunity to register a personal protest against something I considered illegal and immoral? Perhaps.

But perhaps also it was a reminder that society and government operate on trust, and when trust is broken, society ceases to function.            

Would You Buy a Used Car from SNC-Lavalin?

Two hundred and eighty million dollars is a slap on the wrist.

It doesn’t take an expert in corporate finance, engineering, or law to understand this. All it requires is a broad perspective and common sense.

On December 18, 2019, SNC-Lavalin, the engineering firm at the heart of 2019’s biggest Canadian political scandal, pleaded guilty to one charge of “fraud over $5,000” and was fined 280 million dollars. This settled a prosecution that had been in process for several years.

$280 million seems like a lot of money, but it is far lighter than the penalties that could have been imposed. For instance, SNC-Lavalin could have been barred from bidding on contracts involving the Canadian government for ten years. This would have been huge because a large part of SNC-Lavalin’s business is major public works projects funded by governments. And since most provincial and municipal government projects now receive federal government funding, the company would have been precluded from bidding on many of those projects as well. Consider also that schools, universities, hospitals, bridges, highways, transit projects, and much more are all paid for by governments.

Compared to the loss of such contracts, $280 million is small change. SNC-Lavalin had over $10 billion in revenue in 2018. For such a company, $280 million spread over five years is just a cost of doing business.

Consider also that the charge to which SNC-Lavalin pleaded guilty concerned bribes of $113 million to obtain contracts in the relatively small county of Libya. The company is accused of defrauding Libyan organizations of about $130 million. And this was not an isolated case. The company had already been banned from bidding on many other overseas contracts due to other cases of bribery. In Canada, the company reportedly paid $22.4 million in bribes to obtain a contract worth more than $1.3 billion to build a new complex for McGill University Health Centre (MUHC). MUHC manager Yanaï Elbaz pleaded guilty to four charges on November 26, 2018 and was sentenced to 39 months in prison, MUHC CEO Arthur Porter died in a Panama prison while fighting extradition, and Porter’s wife Mattock Porter was sentenced to 33 months in prison for laundering the bribe money. There were also hints in those cases about possible other bribes involving contracts in Algeria and Alberta. The company has also been investigated for corruption involving the Kerala hydroelectric dam in India, the Jacques-Cartier Bridge repair in Quebec, and the Padma River Bridge in Bangladesh. SNC-Lavalin was also caught making illegal contributions to political parties, particularly the Liberal Party. This might be one reason why the Trudeau government tried so hard to help the company avoid prosecution. It is telling that the company’s stock shot up 14 per cent the day after the Trudeau government was re-elected last October.

That the company got off lightly is indicated by the fact that the company’s stock jumped 20 per cent on news of the settlement. It is also evident in the company’s statement that it “does not anticipate that the (guilty) plea will have any long-term material adverse impact on the company’s overall business.” Even the CBC, often favourably disposed to the Liberal government, reported that SNC-Lavalin got “most of what it wanted” from the plea deal.

This raises the question of why the prosecution agreed to a plea deal. It is not that there was uncertainty over whether the company would be convicted in court. There was no shortage of evidence, and cases against SNC-Lavalin leaders had already resulted in convictions. On December 15, 2019, Sami Bebawi, who carried out the bribery scheme, was found guilty of all five charges he faced.

Did the Prime Minister’s Office put pressure on the prosecution to settle the matter, as it earlier tried to pressure Attorney-General Judy Wilson-Raybould? Crown prosecutor Richard Roy said, “This decision was made independently” and current Attorney General David Lametti was not involved. Of course, previously the prime minister had categorically denied that he and his staff had pressured Wilson-Raybould—until irrefutable evidence surfaced that they had pressured her. The truth is that we will likely never know. If the Prime Minister’s Office has learned anything from that earlier attempt, it is likely that it learned it needs to do a better job of covering its tracks.

There is no hard evidence either way. However, it is surely suspicious that the plea agreement was reached, not at the beginning or end of the trial, but in the middle of it. It was also in the middle of the Christmas rush, when Parliament was no longer in session and the deal would receive little attention. By the time critics had time to notice and analyze the deal, it would be “old news,” too late to protest. The timing seems more politically advantageous than judicially mandated.

After the settlement, Prime Minister Justin Trudeau expressed satisfaction that jobs would not be lost at SNC-Lavalin.

But what would have happened if SNC-Lavalin had lost the opportunity to bid on government contracts? Does that mean that bridges and hospitals and schools would not be built? No. It only means that the contracts would have gone to other, less corrupt engineering firms.

Consider why SNC-Lavalin might have resorted to bribery to obtain contracts. If the company was convinced that bribes were necessary, it suggests that the company was afraid its costs would be deemed too high or the quality of its work too low. Otherwise, it would have been confident it could win the contracts based on merit.

The court case and the relatively light punishment do not necessarily mean that the case is “settled.” It may be settled legally, but a verdict has not yet been fully rendered in the court of public opinion. A company’s success depends on goodwill, on trust. In this case, since it has been established that SNC-Lavalin broke the law to get contracts and it seems clear that it attempted to pervert the judicial system to avoid prosecution, there will inevitably be lingering questions about what else it will do. Can such a company be trusted to comply with environmental protection standards, employee relations standards, and human rights standards? If it will pay bribes in order to make more money, can it be trusted not to cut corners on construction standards and engineering safety to increase its profits? Next time you drive over a bridge designed by SNC-Lavalin, consider whether you are willing to bet your life on a company that has been convicted of fraud. Next time a government awards a contract to SNC-Lavalin, how will you be sure that that award did not come about as a result of a bribe paid to some government official? How far would you trust a politician who trusts a corrupt company? The settlement of the court case does not necessarily restore public trust in the company.

Carbon Tax Questions

I received my natural gas bill yesterday. For the last month, spanning parts of January and February, the coldest stretch of winter, I used $31.58 worth of gas to heat my home and provide hot water. (In summer months, it is often less than $10.) The gas company charged me an additional $67.97 to deliver the gas to my home, which seems excessive. I guess pipelines are expensive.

I was also charged $24.43 in carbon tax, $.40 in a clean energy levy (whatever that is), and an additional $6.20 in GST. In other words, I spent almost as much in taxes as I spent on gas. The federally mandated carbon tax is currently calculated at $30 per tonne of carbon dioxide emissions in 2020 and will rise to $50 per metric tonne by 2022. However, I am in British Columbia, where the carbon tax is currently $40 per tonne and is scheduled to rise to $50 by 2021. That means that in a little over a year, I will likely be paying more in tax than I will be paying for gas. Experts say that to actually achieve Canada’s carbon reduction goals, the carbon tax would have to increase to about $150 a tonne.

I have a small house, about 1600 square feet (slightly smaller than Justin Trudeau’s house, but then taxpayers are paying his gas bill and his carbon tax). I have added whatever insulation I could and added a second layer of windows, years before there was a carbon tax. What else can I do? Stop heating my house? Shower in cold water? (We are already washing our clothes in cold water.) A tax to force people to change their behaviour can only work if there are viable alternatives to switch to.

I could spend $8,000 to upgrade to a more energy-efficient furnace, but my furnace expert tells me that the savings would be minimal and the furnace would likely only last about ten years. (My current furnace is about 45 years old.) Furthermore, any reduction in my carbon footprint would likely be offset by the carbon emissions created in the manufacture and transport of my new furnace.

I could spend $10,000 to install solar panels on my roof and switch to electric heating, but that would likely save me at most only a little money on my monthly heating bills (it rains most of the winter here in British Columbia), and I simply don’t have the $10,000. Too often, “going green” is a rich man’s luxury and a poor man’s burden.  

The carbon tax is supposed to force Canadians to reduce their carbon footprint. But I have already done everything I can reasonably do and can reasonably afford to do in order to reduce my carbon footprint. So, tell me: what earthly good is that $24 a month I am paying in carbon tax actually doing? How is me paying tax to the government saving the environment?