Prime Minister Justin Trudeau is set to huddle with his new cabinet on how to address the soaring cost of living, a growing vulnerability for his government as more Canadians blame it for their rising bills.
Trudeau overhauled his front bench last month to focus on affordability, especially housing. A three-day retreat in the eastern province of Prince Edward Island will be the first opportunity for the new cast to hammer out potential solutions and messaging together.
Pressure is mounting. Three in 10 Canadians blame government spending over other factors for the rise in consumer prices, according to a Nanos Research poll for Bloomberg News. Another 22% blame businesses for increasing their prices, while 10% point the finger at the Bank of Canada.
“For the average person, it is like an inflationary spiral one cannot escape,” pollster Nik Nanos said by email. “Government spending increases inflation, the Bank of Canada increases rates and businesses then increase prices to cover rising inputs into goods and services.”
While headline inflation was 3.3% in July, food prices were up 7.8% and the central bank’s aggressive hikes mean mortgage interest costs have spiked 30.6%. Record levels of immigration have exacerbated a housing supply shortage, helping boost the benchmark home price to C$754,800 (about $558,000).
Meanwhile, federal spending is still above pre-pandemic levels, with the government projecting a C$40.1-billion deficit this year. Last week, Trudeau’s former finance minister, Bill Morneau, blamed the government’s extension of Covid-19 financial relief programs into late 2021 for helping juice inflation.
Trudeau has begun to send a message of belt-tightening. Treasury Board President Anita Anand, the former defense minister, recently sent a letter to cabinet colleagues giving them an October deadline to find areas to cut C$14.1 billion in spending by 2028 and C$4.1 billion in the years that follow.
Speaking in Alberta last week, Finance Minister Chrystia Freeland said the savings are essential to maintain a fiscally responsible position so her government can deliver programs such as a temporary tax rebate and clean-energy tax credits for businesses. The cuts were first promised in her March budget.
“We understood then, and we understand now, that inflation has been really challenging for Canadians. And we understood that the federal government had a responsibility not to pour fuel on the flames of inflation,” Freeland said.
At the retreat, the cabinet will have to wrestle with two competing priorities: boosting affordability and exercising fiscal restraint, said Marci Surkes, who formerly worked as Trudeau’s policy director and is now an adviser to Ottawa-based consultancy Compass Rose Group.
“I expect that Freeland is going to have a very tough message to ministers,” she said. “It’ll be interesting to see if this comes out of the room, but I would anticipate that she is going to deliver a message around restraint and prudence.” At the same time, the government must signal that it has a plan to address cost-of-living, she said.
In an interview, Industry Minister Francois-Philippe Champagne said ministers will spend the retreat examining how they can support Canadians with their short-term challenges, but also keeping an eye on the longer term. He pointed to recent investments by automakers including Volkswagen AG, Stellantis NV and Ford Motor Co. — all subsidized by governments — as key to its economic vision.
“Canadians elected us to make a difference, to help them. We have demonstrated time and time again that we have their back,” Champagne said. “This time is going to be no different.”
The Nanos poll suggests government messaging hasn’t been effective so far. The 30% share of Canadians who blame federal spending for the cost of living has increased since July 2022, when it was 26%. The numbers blaming the central bank and businesses have also risen, while a decreasing number say pandemic supply chains are at fault, down to 17% from 31% last year.
The survey of 1,081 people was conducted by phone and online between July 30 and Aug. 3. It’s considered accurate within 3 percentage points, 19 times out of 20.