EDITORIAL: Inflation swelling government coffers

Article content

With annual inflation now at almost 6% — a 30-year high — Canadian families are suffering, but our federal and provincial governments are not.

That’s the insidious thing about inflation — it’s bad for ordinary people but good for governments, especially big-spending ones.

For most Canadians, high inflation lowers their standard of living as they pay more for necessities such as food, shelter and for almost all goods and services.

High inflation eats into their take-home pay and savings.

Meanwhile, their governments are raking in more money as prices increase, because the taxes on them raise more money.

The amount of money generated by corporate and personal income taxes also increases.

Because inflation puts upward pressure on wages and salaries, many income earners move into higher income tax brackets, further swelling government coffers, which is only partially offset by indexing.

The other major advantage for governments in a time of rapidly increasing inflation has to do with the financing of government debt.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

As inflation rises the value of money decreases. 

This effectively lowers interest payments for governments on the debt they owe, because they now require a smaller percentage of total tax revenue to meet those payments.

By contrast, those who lent the government money — the holders of government debt — lose ground during a period of rapidly rising inflation because of the decreasing value of the money they’re paid. 

What it all comes down to is that inflation makes the life of most Canadians harder while it makes the life of governments — particularly big-spending governments — easier, as inflation pours more money into ever-expanding government programs.

Generally speaking, the people making government policies — prime ministers, premiers and cabinet ministers — have salaries and benefits that insulate them from the corrosive effects on inflation, the problem being that they don’t feel it the way most households do.

To be sure, long-term, runaway inflation benefits no one, which is why the Bank of Canada, having severely underestimated the current pace of inflation, is now raising interest rates in a bid to slow inflation down by increasing the cost of borrowing.

But that takes time to work and, in the meantime, life for the average Canadian is becoming increasingly expensive, while governments are raking in the cash.