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Kim G C Moody’s Musings – 1-1-1 Newsletter For July 2, 2025
One Comment About Taxation – So How Is All of Canada’s Eye Watering Spending Going to Be Paid For? New Taxes?
The amount of federal spending that PM Carney has committed to last month is, frankly, eye watering. The boosts to our country’s defense budget – $9 billion – and NATO spending pledges – a commitment to eventually spend 5% of our country’s GDP annually – amount to billions in the short term and hundreds of billions in the longer term. And all of these spending commitments have been made without presenting a spring budget.
When asked by a reporter at The Hague Summit about how Canada will pay for all of the spending and acknowledging the Parliamentary Budget Officer’s concerns about sustainability (more on that below) – Mr. Carney made a visible eye roll (I guess his eyes were watering from the increased spending too) before proceeding to give a non-answer. He defaulted to his usual talking points about how the government is committed to growing the economy, “balance the operational budget” within 3 years and “invest” in Canada.
I’ve discussed the commitment to balance the operational budget many times. It sounds good. But it’s not. It’s a simple accounting trick designed to mask spending by moving costs to the “capital budget”. It doesn’t help reduce spending in the least. Nor the increased debt servicing costs that will result from the increased – but less visible – spending.
The PBO report that the reporter was referring to when asking his eye-rolling question was about our country’s year-to-date finances. It had the following eye-catching quote:
“Unlike the previous fiscal anchor, the Government has not defined how the new Operating Budget targets will be measured. Specifically, there is no commonly accepted definition of what is defined as “operating” or “non-operating/capital” spending. Hence PBO is unable to assess whether the Government’s recent fiscal policy initiatives presented in Parliament…are consistent with achieving its new fiscal objective.
PBO also notes that the Government could fulfill its Operating Budget goals, and yet at the same time the federal debt-to-GDP ratio could grow because of additional borrowing for non-operating spending (for example, new acquisitions of weapons systems for the Canadian military). This means that the Government could achieve its fiscal objective and yet be fiscally unsustainable.”
The PBO is bang-on and the related question is logical. Regardless of how you account for such additional spending – operating vs capital – the amounts need to come from somewhere either in the form of increased revenues, taxes, or cuts in government spending. Or both.
It’s my contention that there is a lot of room to significantly cut expenditures without affecting core essential services like health transfers, support for the vulnerable, defense, etc. especially when one considers how fast expenditures have been growing. Ten years ago, federal expenditures were $250.1 billion. For this coming year, it’s expected to be $486.9 billion – a 94.7% increase (revenues haven’t kept pace). My contention, however, would need to be proven by a significant audit of such expenditures, not endless academic “studies” that suggest the government has plenty of fiscal capacity to continue spending.
Without reining in growing expenditures, there is only one way to go: increased revenues. Taxes. Former U.S. President Ronald Reagan once quipped: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”. Apropos. Why? Because one of the easiest things for a government to do is to implement a tax as a “solution” instead of trying to deal with the core or systemic issue.
Over the years there has been no shortage of silly taxes introduced by nations to deal with certain issues such as a tax on bachelors (thought to help procreation) in ancient Rome and Italy in the 1920s, an email tax in Hungary (quickly abandoned). It’s amusing to review the history of what governments have implemented taxation on. One would think such history provides good lessons but unfortunately that doesn’t appear to be the case.
As a recent example, one writer recently proposed that Canada should introduce a new defense and security tax – functioning like our GST – so as to help pay for our country’s required defense commitments. While I appreciate the writer’s passion – and I do think a consumption tax is a better way to tax as compared to the income tax – simply introducing new taxes to deal with increased spending is hardly a solution.
Unfortunately, these types of articles have been common in recent years. The federal government is well known for testing ideas by “friendly authors”. It’s a common tactic. I can almost hear the conversation in the Prime Minister’s Office: “Hey, let’s get Mr. X to publish an article on our latest idea and then do a poll to see how it lands!”.
Recent examples have included articles advocating wealth taxes, changes to the principal residence exemption, a home equity tax, and a whole host of housing-related tax measures. This kind of “tax policy by polling” is a dangerous path forward, shallow in substance and driven almost entirely by politics. Case in point: on a quiet Sunday night, June 29, 2025, the government abruptly scrapped the Digital Services Tax after sustained pressure from the U.S., a last-minute retreat from yet another ill-conceived tax.
A comprehensive solution to our country’s fiscal mess starts with a budget. Something we won’t see until the fall. It also includes a comprehensive audit of our government spending and a comprehensive tax review / reform, not just a corporate tax “expert review”.
Eye-watering spending and eye-rolling dismissals of legitimate questions might fool some for awhile. But they don’t fix broken budgets or build a sustainable future. New taxes aren’t the solution – they’re a symptom of deeper problems. Canadians deserve better than accounting tricks and polling-driven tax policy. Former South African Archbishop Desmond Tutu said “There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in”.
It’s time to go upstream. And to open our eyes.
One Comment About Leadership – Leaders, Protect Your Confidence
Confidence is a leader’s most valuable asset. And the easiest to lose. As Dan Sullivan, founder of The Strategic Coach says:
“Every entrepreneur’s number-one responsibility is to protect their personal confidence.”
I agree. And losing your confidence can happen quickly. It happens to me regularly despite my outward appearance. I need to regularly work on it. And that work helps. How do I work on it?
Well, sticking to my Morning Routine helps: early morning exercise, coffee with my wife, writing down what I’m grateful for and my priorities for the day, etc.
Continuously learning and being curious also helps me. I want to learn and if I speak on something I want to be confident about that subject matter!
Working on my personal relationships with others definitely helps with my confidence.
Hanging out with peers in a structured peer-to-peer learning environment
But routines only go so far when life throws a curveball. What then?
For example, in my profession, there are no shortage of egos. Early on in my career, like many young professionals, I was “book smart” but lacked experience and seeing the bigger picture (which generally means understanding the intersection of various policies, laws and administrative practice when learning taxation).
To try to get better, I joined a small tax study group. There were a lot of experienced professionals in the group, so I was fairly intimidated. I subscribe to the theory that there are no dumb questions, so I was not shy – and never have been – to ask questions and speak up to try to understand. Early on in my attendance of these meetings, the topic du jour happened to be on something that I just finished working on and was struggling with. I spoke up and asked a question and offered some comments and a planning suggestion. One of the senior practitioners – and well known – in the group responded with a comment that I’ll never forget almost 30 years later: “Hahaha….if you implement such a plan you’d better make sure your insurance is paid up….that’s crazy!”.
I was embarrassed. And quickly lost my confidence. I found a way to early exit the meeting and never came back. I spent the next couple of weeks wondering why my “plan” was a dumb idea. Turns out my plan wasn’t the greatest idea just like the senior practitioner stated. But I was still stinging from the public dress down.
Since that time, there have been no shortage of public commentary about my activities from peers. Most are supportive but the constant critics also exist. There is one fellow who has the obvious need to always be the smartest person in the room (again, a symptom of many of the professions). He feels the need to always criticize my commentary and try to position such comments that he’s smarter than me. I’ve learned, with the benefit of much experience and hindsight, that responding to such criticism is a fool’sgame. I’ve grown a much thicker skin to ensure my confidence is not eroded by shallow or personal criticisms. Instead, I try to see if there is any validity in criticisms and if I can learn from them. Easier said than done but maintaining your confidence is critically important.
Confidence isn’t arrogance. It’s the courage to show up, speak up, and learn. Leaders don’t always have the right answers and don’t need to be the smartest person in the room, but they keep asking questions. What do you do to protect your most valuable asset?
One Comment About Economics – The Scrapping of Canada’s Digital Services Tax
Canada implemented legislation last year to impose — retroactive to 2022 — a Digital Services Tax (DST) on certain large international technology companies operating in Canada. It was scheduled to take effect July 1, 2025. But, as noted in the taxation section above, the government abruptly backed down, announcing it would scrap the DST with repealing legislation to follow.
The DST drew significant attention from both tax and non-tax practitioners. On one hand, some tax academics supported it as a pragmatic substitute for a stalled global agreement — a proxy for ensuring large multinationals “paid their fair share.”
I disagree.
I align with many industry professionals who view the DST as a poorly conceived, politically motivated tax that unfairly targeted U.S. tech giants — many of whom already pay Canadian corporate tax. It ignored ongoing international efforts to create a coordinated solution and imposed retroactive liabilities that were simply not fair.
The U.S. — including the Biden administration — has consistently and loudly opposed such taxes. When the current administration threatened retaliatory withholding taxes and tariffs, Canada finally blinked.
Some commentators, particularly outside the tax world, claimed the DST was about “standing up for Canada.” I find such remarks lacking in depth and seriousness.
Others suggest the DST was a tactical move to secure a better trade deal. Maybe. But from my perspective, it was bad policy from the start — one that unnecessarily aggravated Canada–U.S. economic relations. And while some may cheer that kind of friction in the name of sovereignty, I don’t.
Good policy should always be the “trump” card. Pun not intended.
Bonus Comment – Quote From Me – Kim G C Moody – About Protecting Your Confidence
“I’ve learned that confidence can’t be assumed. It has to be earned — and protected — every day.”
Leaders, protect your most valuable asset!
Hope you enjoyed this edition of 1-1-1. If you’re not already part of the In the Mood Network, now’s the time. Please sign-up today. Whether it’s through consulting, coaching, speaking, or writing, my work is about planting acorns: deliberate, principled actions that challenge the status quo and grow into something far bigger. The goal? Bold reform. Stronger foundations. And a country that values hard work and common sense.
