2015 Election economic glossary

Election-speak can sound like gibberish. We’ve cut through the election rhetoric to help you understand what politicians are saying about Canada’s economy.

Carbon tax: A tax on greenhouse gas emissions emitted by burning fuel. The government taxes each tonne of carbon, encouraging greenhouse gas emitters to cut down on how much they produce, or to eliminate emissions altogether.

Opponents argue that the tax is passed on to consumers in the prices of goods or services produced by emitters, without guaranteeing that a company will actually work to lower emissions. They also argue it’s a tax-grab by the government.

Proponents argue that complementary tax credits, such as B.C.’s Low Income Climate Action tax credit, offset costs to people and make the tax revenue-neutral for the government. They also argue that an economic incentive to change polluting behaviour is an effective way to lower emissions.

Source: Government of British Columbia

Debt: The government’s outstanding financial obligation to lenders.

The government projects Canada’s debt will be $617 billion in 2015-2016. The debt-to-GDP ratio (a key measure of how big the debt is compared to the economy) would be 30.8%.

Sources: Department of Finance, Budget 2015

Deficit: When the government spends more money than it takes in.

A budget deficit forces the government to borrow money, adding to the debt. After running a deficit for the last six years, the government predicted a surplus of $1.4 billion in 2015-2016. These estimates may change now that Canada is in a technical recession.

Source: Budget 2015

Gross Domestic Product (GDP): The total value of all the goods, services, property and investments made in a country’s economy. GDP measures the size of a country’s economy. When it’s growing, the country’s economy is growing; when it continuously shrinks, the economy could be in a recession or depression.

Source: Barron’s Dictionary of Finance and Investment Terms

Income splitting (a.k.a. the Family Tax Cut): Introduced by the government for the 2014 tax year onward, the Family Tax Cut is a non-refundable credit worth up to $2,000. The credit is calculated as if the higher-earning parent transferred up to $50,000 of income to the lower-earning parent, taking advantage of that spouse’s lower tax bracket. While the high-income parent benefits from a credit, his or her actual taxable income doesn’t change. To be eligible, the parent must not be separated or divorced, and they must have a child who is under 18 at the end of the year.

Source: CRA

Inflation: The increase in price for goods and services over time. It can be measured by Statistics Canada’s Consumer Price Index, which monitors the prices of a fixed basket of goods commonly bought by Canadians, including fruits, vegetables, clothing and gasoline. The Bank of Canada’s target for inflation is as close to 2% as possible, though between 1% and 3% is acceptable. The inflation rate (total CPI) in July 2015, the most recent month available, was 1.3%

Sources: Bank of Canada, Statistics Canada

Target interest rate: The rate the Bank of Canada sets for the cost for banks to borrow money from each other overnight.

Formally known as the ‘Target for the overnight rate,’ it influences the rates Canadian banks set on loans to each others, and on loans to customers, such as mortgages. The Bank of Canada lowers the interest rate when it wants to encourage lenders to make loans, which stimulate the economy. It raises rates when it wants to discourage borrowing and the economy is doing well. The Bank has lowered the rate twice this year, from 1% to 0.75% in January, and to 0.50% in July.

Source: Bank of Canada

Middle-class Canadians: Politicians and researchers have defined the middle class loosely. It could be a family earning between $40,000 and $120,000, depending on whom you ask.

One widely used definition excludes the top- and bottom-earning 20% of Canadians, and classifies the remaining 60% as middle class. This includes families with incomes between $25,170 and $87,500, using data from the 2011 census.

Sources: Maclean’s, The Globe and Mail

Omnibus budget bill: The government outlines its spending and taxation priorities in the budget every year. The budget explains those priorities in general terms, but to actually implement them, Parliament must pass a budget implementation bill. Traditionally, the bill included only the legal changes necessary to implement the budget. In recent years, the government has included changes to other laws, not mentioned in the budget, in the budget bill.

Critics of this practice say changes to unrelated laws should be separate from the budget bill, and that lumping them together reduces Canadians’ ability to scrutinize the impacts of both the budget and the changes to unrelated legislation.

Proponents of the practice say it’s an efficient way to pass legislation.

Recession: A common definition is when the economy, as measured by gross domestic product (GDP) shrinks for six months or longer. This definition is disputed by some economists, who say economic activity should be measured by more than GDP. Other indicators the economy is in a recession include a rise in unemployment and bankruptcies, and less business and capital investment.

Contrary to NDP leader Tom Mulcair’s assertion in the Maclean’s Leaders’ Debate, Stephen Harper is not the first prime minister to have two recessions under his watch. That distinction goes to William Lyon Mackenzie King, who was prime minister during both the Great Depression and the recession of 1947.

Sources: 2015 Budget Implementation Bill C-59, Barron’s Dictionary of Finance and Investment Terms, Financial Post

Trade balance: The difference between how much Canada imports compared to how much it exports. A positive trade balance (known as a surplus) means Canada sends more goods abroad than it brings in, while a negative balance (known as a deficit) means the opposite.

Canada’s trade balance has been in deficit every month of 2015 so far. In June, the most recent month for which statistics are available, the deficit was $476 million.

Sources: Foreign Affairs, Trade and International Development Canada, Barron’s Dictionary of Finance and Investment Terms, Financial Post