Back to the Home Front in Canada

FRANK MCKENNA: Productivity is the largest issue facing our country, and yet it's very hard to fix it because if you ask the public about it, they would say, we didn't know we had the problem.

PETER HAYNES: Welcome to the April episode of Geopolitics with the honorable Frank McKenna. My name is Peter Haynes at TD Securities, and I get the pleasure to host this monthly podcast series where we travel around the world to cover the most important global geopolitical issues of the day all from our perch here in Canada.

Well, Frank, we've reached episode 51 in this geopolitical series. And I must admit that when we started this series over four years ago, I thought the focus would be primarily on Canadian issues. And that has not been the case as we seem to be spending most of our time around the world. Well, today, I want to reverse that notion by digging in on several made in Canada issues.

But just before we get started on Canada, I want to get your thoughts on tensions in the Middle East. Do you have any confidence, Frank, that Israel's limited military response to the Iranian drone strike is a sign that Netanyahu is actually listening to the Western world and the allies that are asking him to de-escalate the situation with Iran?

FRANK MCKENNA: Yes, I believe so. The pressure is intense both domestically in Israel to do something in response to the Iranian attack, but from the international community to mute that response so that it didn't provoke another round of tit for tat. And I think they have brought that off in terms of signaling. Both Israel and Iran have both signaled in very intelligent diplomatically-driven ways that this should be the end of it.

PETER HAYNES: And you feel confident that that's the case? Or do you think we're going to have more proxy related stuff that's going to come in and get Israel frustrated? Or are you confident that at least that flank of this middle Eastern war might have just calmed down a little bit?

FRANK MCKENNA: Well I think the prospect of an all out firefight between Iran and Israel has calmed down. I don't think that Israel is through with its Gaza excursion, and particularly going into Rafah. And that's going to excite even more animosity from its partners. Netanyahu simultaneously is dealing with very significant domestic tensions. His intelligence chief resigned in the last several days, accepting responsibility for the intelligence failure of October the 7th.

And there's no doubt a lot of people will be thinking that that was an honorable thing to do and it should be the course of action taken by Netanyahu as well. But Netanyahu's political survival, quite frankly, depends on prolonging this particular war as long as he can. So whether that weighs into the military decisions or not, I can't tell you. But it's not always good to have somebody's political survival and the future direction of a country coinciding.

PETER HAYNES: Well, we'll table that conversation because I know we're going to be coming back to it as issues continue to unfold in Israel and in Gaza. So as I mentioned earlier, Frank, I want to focus our attention on Canada, which we frankly haven't done a lot of lately. The Liberal Party's Minister of Finance Chrystia Freeland delivered her spring budget last week.

In a Nanos poll that was completed a couple of weeks before the April 16 budget, 63% of Canadians surveyed want the government to spend less, with 38% of those surveyed wanting debt paid down and the other 25% of the 63 wanting tax cuts with the spending savings. Are any of these folks going to be happy with the budget?

FRANK MCKENNA: I think your question is a little different from your statement. I think that's a stupid poll. And that's stupid only in the sense that if you ask people motherhood questions, you'll get motherhood answers. Everybody wants to go to heaven. Nobody wants to die. And if you ask somebody whether government should spend less, they'll automatically say yes.

Then if you start giving them choices about where to spend less, for example, should we spend less on health, should we spend less on old age assistance, they'll say no. Of course, we shouldn't spend less there. So unless people have choices to make and make those choices, all these poll questions are is virtue signaling.

Now, most polls-- and I regret this because I don't agree with it-- but most polls show deficit reduction comes dead last in terms of the public priority. And I remember getting into a fight with a pollster who told me, Frank, you're the only person left in the country who really cares about deficits. And I think that may be true from a polling perspective. People don't care about-- they don't care about issues like debt until such time as we have a crisis and then they care a lot.

David Dodge and I were talking about this just in the last couple of days. I was a former governor of the bank. And he pointed out to the fact that in the 1990s when Preston Martin took on Canada's huge fiscal challenges came about as a result of the Mexican collapse spiking Canadian interest rates, a collapse in the loonie was talked about being the Canadian peso.

And that burning platform was what gave them the political cover to tackle wide ranging cuts in the federal public service and the reduction in transfers to the provinces, which also led to cuts at the provincial level. And that bout of crises led us to a balanced budget, in fact, to surpluses and to reduction of spending to the point where we actually were able to lower taxes and interest rates came about as a result of that as well in a downward direction.

So all of that to say is that you need a burning platform to make those kind of very, very difficult decisions. And motherhood questions and polling really doesn't help at all. We see that now, Peter, on productivity. Productivity is the largest issue facing our country by far, and yet it's very hard to fix it because if you ask the public about it, they would say we didn't know we had the problem. And until people are firmly fixated on the problem, they're not prepared to agree to the solution.

Did the public get what they want, going back to your question? I don't think they got what they want. But a more important question is always, did they get what they need? We'll see on that. And it depends on who you ask that question to. I spoke with a cabinet minister in the government just in the last couple of days and I said, how do you feel about the budget? Must have been tough for you to defend.

On the contrary, he said, in my riding, the budget is wildly popular because what people care about there is rental relief, housing issues, small business getting their carbon rebate. And he said, I don't have a lot of people in my riding who care much about the capital gains inclusion rates. So I can see that reflected in my own situation.

In New Brunswick, there was some granularity done with the figures on the capital gains exclusion impact. Turns out there are 300 people owning in the entire province of New Brunswick impacted by that. So the government, I think, is of the view that they can get away with some revenue enhancements of this nature. And they put enough goodies in the budget to move the dial.

And quite frankly, Peter-- I'll close on this-- this is the government's last best chance to turn things around. We shall see whether they do or not. But what they're trying to do is create a binary choice and paint Poilievre as a fan of lower tax rates for the rich and ignoring the working class people of the middle class, so to speak.

And I think Poilievre is pretty clever. He's not jumping on that grenade at all and trying to avoid setting up that narrative for the Liberals to say that you're either for the middle class or you're for the rich. I think if they can frame it that way, they win. If Poilievre they can avoid it being framed that way, he wins.

PETER HAYNES: And Poilievre definitely came out quickly. In fact, most of the opposition leaders and party officials came out and said they felt like this was an election budget. And for that matter, there's been socialization of budget issues that have gone on for the last few months. And I want to talk to you about that in just a minute.

But just before we get there, I want to focus on the capital gains issue that you referred to a second ago and really how that all came about. So in the days leading up to the budget as government officials were traveling across the country, as I mentioned, socializing several of the issues that they plan to address on April 16, speculation began to surface-- and I know, Frank, you and I talked about this-- that tax increases were pending.

And this speculation narrowed in on one of two potential areas of attack by the government. First of all, it was taxing wealthy Canadians, which we now know turned out to be the capital gains tax. But the alternative that was being considered or discussed, we believe, was a windfall tax on energy companies that are benefiting from high oil prices.

In the end, we do know the Liberal government chose to attack capital gains. What are the factors that you think the Trudeau government considered in this calculus that it used to tax capital-- capital gains, that is-- rather than a windfall tax on fossil fuel energy producers.

FRANK MCKENNA: So let's start with the macro issues. The goal of the government at the high level in this budget was to keep the deficit below $40 billion and reduce debt as a percentage of GDP. They couldn't get there in their view with the expenditures which were announced without some revenue measures. So that led to the choices that had to be made.

I was in the middle of some of those debates, so I can tell you some of the options that were considered. They were looking at a windfall tax on food companies, for example. I think they concluded that was more likely to increase the cost of food. And so instead, they've fallen back on an effort to try to introduce more competition in the sector. They've been talking with 20 international grocery companies to try to see them come in to Canada.

The other thing they were looking at was an oil windfall tax. And I have to say the stars were quite aligned on that. The pipeline is opening up on May the 1st, Trans Mountain pipeline. It's creating enormous amounts of new revenue. There'll be almost $5 billion in tax revenue coming out of the pipeline just from the increased volume.

And that will be in royalties and taxes. Most of that will be going to Alberta. The government of Canada would have an argument to say, listen, we paid for the pipeline. We should be getting a bigger share of that economic rent. And of course, oil companies are going through a period of high profitability as a result of a lot of world conditions. So you've got that.

And then you've got polling which shows that 62% of people were in favor of windfall taxes on the oil companies. And by the way, this has worked in comparative countries. The UK has gone this route, Germany, Italy, et cetera. So there was a pattern been established and a lot of reasons for going that route.

But there were reasons for not as well. For one thing, it would open up another front with Alberta. The government of Canada didn't particularly want to do that. And secondly, it would put in danger what I think is the most important project in Canada today, and that's the Pathway Project, which will take carbon dioxide and sequester it in the ground and allow us to get to the international limits that we've set for ourselves.

And Pathways would clearly have been in jeopardy if there had been a huge firefight opened up with the government of Canada, industry, and the province of Alberta. It's a trilateral negotiation it's delicate. I would say ultimately, that's what made the government decide to go the way they did, which was to change the capital gains inclusion rates.

PETER HAYNES: Now, as we talk about capital gains, Frank-- and we've spoken in previous episodes about the government's efforts to get Canadian pension funds to invest more in Canadian companies. And really, that is a flawed logic in that the thinking was that it would help improve productivity, except we can go into the whole debate about what is a Canadian company, et cetera?

And so the next thing you know, instead of going down that path, the government went down a path of increasing taxes on investments. Doesn't the capital gains tax increase fly directly in the face of the government's own investment push?

FRANK MCKENNA: There's merit in that argument. And I, for one, didn't like capital gains inclusion changes. Paul Martin was the finance minister who introduced that. And I thought that it worked quite well in the country. The government's position, though, they would have two arguments, both of which have some merit.

One argument is the 50% capital gains inclusion rate didn't seem to work before because Canada's almost dead last in the world in terms of productivity. So how can you say that changing it is going to make things any worse? Number one. Number two, I believe that makes our capital gains regime similar to that in the United States, which is one of the most productive economies in the world.

So the government of Canada, I think, would fall back on that argument as well. Truthfully, Peter, on this one, the amount of revenue that will be achieved will be quite substantial in the first couple of months as people front end load the decisions that they're going to make to try to get them out before June 25.

But this is not just-- it's not a productivity considered measure or, for that matter, I think even raising revenue measure. This is really political. It's to set up a binary choice between those who support big business and those who don't. It's a false choice in my view. But the government would really like to see that kind of dynamic set up to give them more momentum coming out of the budget.

PETER HAYNES: So let me get this straight, Frank, you're suggesting that the expectation in Ottawa is that general investors who have capital gains embedded in their positions will in fact jump ahead of the late June date. And by doing so, will still have an inclusion factor that creates a tax, either gets rid of previous loss carryforwards or results in additional income to the government in 2024. And they're really not really thinking as much about the higher inclusion rate down the road and its potential impact on investment. Is that how you're thinking?

FRANK MCKENNA: I think the former part of that is totally true. There will be a significant jump in revenues as advisors advise clients to get out ahead of this. I think they expect it will continue to be residual revenue that accrues to the government over time. And of course, there will be. I don't think that they really put on the scales in looking at this measure the productivity argument. Productivity is a massive issue facing the country.

This would be one out of 50 separate items that need to be considered in terms of changing productivity around everything from inter-provincial trade barriers to the inability to get projects completed quickly or, for that matter, to supply management. A whole series of things have to be considered. So I suspect that they downplayed the impact of this on productivity. We're looking forward to the big revenue sugar rush that they would get in the next couple of months.

PETER HAYNES: That doesn't even consider the fact that people's behavior will change, corporation behavior will change. The smart people in the room will figure out ways to avoid the taxes, I'm sure. And Frank, let's just on this topic. How is your effort-- and I know you've socialized this maybe privately and, to some degree, publicly, the idea of a royal commission on productivity? Because you mentioned, there's 50 different things that need to be talked about. I know you had that idea and you've discussed that. Do you think it has any legs?

FRANK MCKENNA: This week, I was in a session on productivity. And we talked about a royal commission or just a commission or some process. And everybody agrees that we need a catalytic event right now, a burning platform of some kind or other to get people motivated to deal with this issue. And the process that I'd suggest was one of those being considered.

But there's a general resignation, I have to tell you, Peter, that neither of the mainstream political parties has any interest in tackling this issue at the present time. They don't have a burning platform. They don't have a gun to their head. And neither party want to take this on. And so I think the most we can do-- and a lot of us are involved in this-- is trying to socialize the issue, make people understand the magnitude of it, and be ready to pounce perhaps after an election and get some kind of a catalytic event that will bring this to a head.

I don't know of any other way of getting this brought to a successful conclusion. I mentioned one time that it's like boiling a frog. And unfortunately, the frog doesn't know it's been boiled until it's too late. And in this case, we are systematically dropping down the league tables every single year on productivity. And it is a silent robber of wealth and prosperity and happiness. I just hate to see it happening. And it's happening without any lament and without any active discussion even.

PETER HAYNES: Yeah. I worry if that burning platform ends up being a 60 cent dollar down the road. That's what I worry about the most here. Some of the media coverage, Frank, after the budget had pointed to relief for both pension funds in Canada and Canadian banks. Banks apparently happy because the so-called open banking rules were not as prescriptive as initially feared. And for pension funds, there actually was no mandate that was an edict of the government that the pension funds need to own more Canadian assets.

Instead, on this particular topic, the well respected former Bank of Canada Governor Stephen Poloz was appointed to lead a working group looking into what it would take to get the large Canadian pension funds to buy more Canadian assets. Frank, what do you think of the appointment of Poloz to this position? And looking back, was there really a risk of draconian measures towards Canadian pension funds as part of this budget?

FRANK MCKENNA: I don't think there was a risk. The first and best way of a politician dealing with the controversy is to process it. And it allows us to fight another day and allows the steam to be taken out of an issue and the faint hope that sometimes it might go away. So I think this is an issue the government really didn't want to tackle right now, so they processed it basically by jawboning it.

They'll have Stephen Poloz talking about it. Hopefully, moral suasion will convince the pension funds to invest more in Canada. But the reason why I don't think there's a more draconian crackdown, I think there are two or three specific reasons for that. One, the reputation of our maples, as we call them. The pension funds in Canada are the most respected in the world around their governance and returns, et cetera. And so I think you're taking on a very, very credible party.

Secondly, this fight is looming between Alberta and the government of Canada over Alberta wanting to repatriate its money and invest more strategically in Alberta matters. And the government of Canada's best argument against that is that you really need a large fund like Canada Pension Plan which is exposed to geographies and asset classes all over the world because by living in Canada, you're long Canada.

Well, if they turn around and force the Canada Pension Plan, for example, to invest more in Canada, you're negating that argument. And it's hard for you to argue that Alberta would be making a mistake being long in Alberta when people in Alberta are long just by living there. So I think that those arguments are compelling. And the final argument which has always been compelling to me, if you really want pension funds in Canada to invest more in Canada, then make things available for them to invest in.

Around the world, we're investing in ports. Make them available in Canada. Highways, bridges, municipal infrastructure, none of those asset classes are available in Canada to our pension funds. So unless the government of Canada, provinces, and municipalities are able to show a little more courage about making these assets available, they shouldn't bemoan the fact that our pension funds go elsewhere to invest in real assets.

PETER HAYNES: Frank, you actually penned yourself an op-ed in the national post a couple of weeks ago. And it was related to the Alberta sting and the CPP. And I think that there's only one way to describe that op-ed as a passionate plea to the citizens of Alberta to remain inside the CPP. What's been the reaction so far? You've just mentioned many of the reasons why it's important that we keep CPP inside-- or Alberta inside CPP. What's been the reaction to that letter since you wrote it?

FRANK MCKENNA: Well, I've had a good reaction from a lot of Canadians. It's been very positive. I've had some very hostile reaction, I think, mostly from Albertans telling me to keep my nose out of their business. All of that would be predictable. Look, I'm going to cut to the chase. There are about three or four good arguments for Alberta not proceeding with this.

One is just the merits. Canada Pension Plan is one of the best returning pension plans in the world because of their size. Scale matters, geographic reach matters, diversification of asset classes matter. The bigger you are, the more able you are to do that. So for Alberta to have a pension fund that goes short Alberta just strikes me as just not being very smart.

But then you get into issues which will literally tear this country apart. And if there was anything I was trying to say there is, hey, listen, Canadians, this is not just a government of Canada issue. Every province has a stake in this. If I was a premier, I would demand a seat at the table. On issues of quantum, if Alberta gets what they want, they destroy the Canada Pension Plan. They destroy it for other Canadians.

And if they don't destroy it, all Alberta has to do is to influence BC and/or Ontario to pull their money out. We'd have no Canada Pension Plan. So there's going to be a huge negotiation on how much money they're entitled to. Secondly, portability. In order, under the legislation, for them to leave, they've got to have a pension plan created which is portable. That involves a lot of similarity with the Canada Pension Plan, which is the subject of a very intense negotiation.

And thirdly, delivery. Ontario tried to create its own pension plan under Kathleen Wynne, and they finally ended up bailing out when they realized the cost of delivery and complexity would make it inordinately expensive. So those would all be intense negotiations. Every province has a vital interest. Every province should be at the table. And for all of those reasons, I think it's a bad idea.

I do concede that Alberta has some very legitimate grievances with Ottawa and what I think at times is a lack of respect from Ottawa. But that doesn't mean we need to tear the house down. We have a saying where I grew up in on the farm that it takes a carpenter to build a barn, but any mule can kick one down. In this case, what we need is more maturity around this issue.

I just think it goes to being a country. It's a vast country we have. We have certain symbols of unity that keep us together. I think health care is one of those things, that trans-Canada highway, a railroad system from coast to coast, and our pension plan, which we know is available to us wherever we live in this great country of ours.

So unless I'm mistaken about this, I think we got a hell of a country at a time when the world is, in many ways, in chaos. And I think we should have more people talking about how to keep it together rather than ripping it apart.

PETER HAYNES: Bob Baldwin from the CD Howe Institute has been writing lately on the CPP-APP potential split. And at the end of the day, his math is just-- it's got to be a reasonable split. And it's clear that taking over 50% of the assets and giving it to Alberta just because the formula is outdated and looking at the letter of the law is not reasonable, especially when you consider all the other provinces, as you mentioned, who in theory, could do exactly what Alberta is doing and in essence make it a race to be the first one to leave to make sure you get what you think you deserve. And that's not reasonable when it adds up to more than 100.

FRANK MCKENNA: Exactly, Peter. And not only that. But do we want people, do we want our confederation, our beautiful country to be like a buffet where you just go there and you pick what you want off the table? I mean, PI could say, well, heck, we don't get a single benefit from the Trans-Mountain pipeline, $35 billion to all Alberta. So we want our share of the money back from that.

Now, that would just be wrong. It's be wrong because that's not the way we run a country. And secondly, it'd be wrong because they do, in fact, have a benefit from it as all Canadians do. So we just can't get into that kind of checkbook federalism or else we're doomed.

PETER HAYNES: I couldn't agree more with you, Frank. And so there's a couple of other items that were socialized in advance of the April 16 budget. And one of them that I wanted to talk about now is apparent increase in defense spending, which was very well received by American ambassador to Canada David Cohen who issued a statement on April 8 complimenting Canada's commitment to increase its defense spending from 1.33% of GDP to 1.76% of GDP by 2930.

That gets us closer to the 2% target for NATO members. However, after the budget came out, there were some political observers that suggested there really was not a clear path to reach the 1.76% objective that was discussed in advance of the budget. With the 75th anniversary summit of NATO scheduled for this summer in Washington, I ask you, Frank, have we done enough?

FRANK MCKENNA: Well, I think we probably did what we were capable of doing at this moment in time. Jean-Baptiste Colbert was a finance minister in France. And he said the art of taxation consists of plucking the goose so as to obtain the most feathers with the least amount of hissing. But in this budget, you have to balance a lot of competing needs. Housing, for example child care, et cetera, et cetera.

I think directionally, it was the right thing. I think we should get to 2% of GDP. I just came from a briefing with some prime minister office officials on the budget, and they believe that this announcement really represents the first part of a longer term commitment to getting to the 2%. They don't view this as being the final offer, say this is part of the journey.

And the US is unambiguously positive about what we've done. And all of our NATO partners applaud the trajectory of our spending and our aspirations. So I think all of that's good. But also, it opens up some issues that I think we need to spend a little more time on around methodology. One minister told me, for example, that the United States counts the coast guard as part of its military spending. We don't.

Another minister told me that the US counts border security. We've got thousands of armed people at our customs offices and on our border and in airports, et cetera. We don't count that as part of our commitment. So those things should go on the scale as well. And then the other thing that should go on the scale, and the Americans know this. I was at a meeting in the last few hours that involved both Bombardier and Lockheed Martin.

They're very complimentary about the defense budget because they know it means a vast increase in spending on defense in North America. And what the American defense industry knows is that almost all of these commitments that Canada's made will result in that money being spent in the United States of America with the US defense industries. So that should be going on the scale as well.

PETER HAYNES: Yes. The same holds for the Ukraine money that was approved over the weekend, Frank, the idea that that's really stimulus for the US economy, given that most of the spending will be done by munitions investments made by US companies. I'm sure that that's not lost on the government.

You mentioned housing, Frank. Let's switch to that topic that was addressed with the budget. The CMHC estimates that Canada needs to build 3.5 million new homes by 2030. And that's on top of the normal development targets in order to meet affordable housing needs of the Canadians.

This means that Canada's rate of new housing starts will need to be more than double the normal 250,000 houses per year in order to meet the target. And some pundits suggest this goal is unachievable. It definitely seems aggressive. Last week's budget included 8.5 billion in spending on housing. Is that enough?

FRANK MCKENNA: Well, it's what's available and I think what we have the capacity to absorb at the moment. Altogether, over the budget process and so on, there have been about 40 measures rolled out worth about $20 billion. And why is housing so important? First of all, it's important because it represents one example of intergenerational fairness or lack of fairness.

And secondly, because a lot of young people are particularly aggrieved by this, and they happen to be the voters that both political parties are trying to attract right now. So it has a lot of political resonance. The problem is, Peter, like a lot of things, it's complex. In this case, you've got a lot of internal issues that are making this more difficult to deal with.

First of all, it's had a long gestation period, this problem. Under the Harper, government prices for housing went up 60%. Under Trudeau, they're up 54%. Both governments experienced some of the same problems in trying to deal with housing. Was compounded by the pandemic. Everybody was trying to get repairs done at the same time or to buy houses at the same time, which dramatically escalated the cost of labor and materials.

Then you ended up with the war in Ukraine, which really ignited a lot of inflation in the world, which increased interest rates, which, of course, is a major component of housing. Then you've got the trades. We've reached an inflection point with the trades where some 600,000 are retiring over the next number of years. And in the meantime, there's an enormous demand so that almost everybody who's listening to this call will recognize themselves as waiting for some period of time in order to get tradespeople.

And then, of course, you've got multiple jurisdictions. I had the housing minister at my house last summer because he wanted to meet with mayors. He said that just couldn't get anywhere with the provincial government. The mayors were the ones spending the money, so he wanted to deal directly with them. So you've got municipalities, you've got provinces, you've got the federal government.

And then finally, you got the immigration issue. And the immigration issue, first of all, it helps disguise our productivity challenge by bringing more immigrants to the country so that our per capita outputs may be low but our overall outputs are somewhat higher just because of the growth from immigration. We need those immigrants because we're short of labor in so many sectors and geographies.

And if you turn around and simply say, we're going to reduce the number of immigrants so that we reduce the demand on housing, you also reduce the number of people who build the houses or offer services in those houses or who work in the factories to pay the taxes for all of these houses. So all of that to say that it took a long time to get in this particular mess that we're in. There are a number of complicating factors around it, so it's not going to be eliminated overnight.

PETER HAYNES: So summing up the Conservative position on the budget, Conservative leader Pierre Poilievre suggested there were three things that were needed to get his party's support for the budget. First was abolishing the carbon tax.

Second was to adopt what he's calling conservative proposals on housing that related specifically to carrot and stick policies with municipalities, which you just discussed a second ago over housing starts. And also to end government spending that is not accompanied by equivalent cuts. So it looks like Poilievre is going to go 0 for 3 in this game.

On the carbon tax in particular, I want to get your thoughts on how misunderstood this policy initiative is for most Canadians. Frank, I'm assuming you're having the same conversations with individuals that you know as I am. And I can't find anyone that actually understands the link between the quarterly rebate checks they're receiving each quarter with the increase in taxes at the pumps.

Some people will say they think the rebate's part of their taxes. Others will claim they didn't get the checks. I heard that this weekend from my in-laws. And then thirdly, some think it may be just a direct deposit by the government into their bank account. The whole effort to change behavior through the incentive of a tax rebate seems, in my mind, to have failed.

Now, I hate to say it, but I think the government should have maybe taken a page from Donald J. Trump and instead put a liberal stamp or a Justin Trudeau signature in boldface at the top of every check to make sure everyday Canadians know where the money is coming from and then can think about that as an offset to the increased taxes they face at the pumps. Do you agree, Frank, that the carbon tax and the rebate has been a public relations failure? And is there anything that can be done to repair this situation?

FRANK MCKENNA: Well, it's absolutely a public relations failure. And the Liberals brought this on themselves. First of all, governments used to be able to advertise their good deeds. This current government, part of their campaign against Harper who was using a lot of political advertising, prohibited it. So since 2015, they're not allowed to use taxpayers dollars for political advertising.

So they've not been able to get out there and deliver their message. That is why they are out before and after this budget, going across the country proselytizing, announcing, re-announcing, explaining, and defending the budget in order to get out ahead. But they brought this on themselves by their inability to communicate.

And then secondly-- I don't know if you remember that movie Cool Hand Luke a long, long time ago. Paul Newman was in it. What we have here is a failure to communicate. Well, there's no doubt we've got a terrible failure to communicate. And the government again should have known this was coming.

In 2008, Stephane Dion ran on the green shift, which was a carbon tax and failed. Utterly miserably failed. Went down in flames, unable to sell it. So they should have known that was coming. This was difficult from the outset because you got a federal provincial divided jurisdiction and you've got a problem with the banks.

And the banks were labeling the payments either federal payment or EFT Canada. And the government of Canada didn't have a legal basis for forcing the banks to properly identify those payments. So the government's now changing the law, and the law now will require banks to properly label these rebates. So you're absolutely right. People make no Association between the two.

Now, there's two or three other quick things that I would mention. One is that Guilbeault-- he's a cabinet minister from Quebec. They have a carbon trading scheme. They don't have the same public relations disaster the rest of the country has. And I think that he never really came to grips with the fact that other Canadians did not see an association between the carbon tax and the carbon rebate. So I think that was a problem.

Secondly, Poilievre had been very clever on this and doing what opposition leaders do well, exploiting the issue. And ax the tax is a very, very easy message. Poilievre is a good communicator. It's a very easy message. It's a lot easier message than explaining the complex narrative around climate change and the need for carbon pricing, et cetera, et cetera.

And then the third problem is that there's a lack of immediate gratification or evidence around the benefits of carbon taxation. It wasn't like people could just say, oh, look, I'm going to pay a little higher price for gas and then I'm going to change my behavior. And that's going to be good for the environment. And I'm going to get a check back for doing that, so hallelujah, this is a good thing.

It's more complicated than that, and it's more time-delayed. It takes a while for us to make different choices around the kind of vehicle that we're going to drive, et cetera, et cetera. If there's any good news, it's that this is hopefully not fatal to our efforts on climate change. The Canadian Climate Institute, which is a nonpartisan group, they look at policies for reducing greenhouse gas and industrial emissions.

They would say that industrial carbon pricing is the biggest single factor. And they can already point to very concrete results from that. And that's what I mean by that is the industrial carbon pricing, which is built into the Canadian economy at present time, it has three times the emissions reduction of consumer carbon price. So the good news is that even while this consumer carbon price debate goes on, we are grinding down greenhouse gas emissions through the industrial pricing.

And my humble view, if the conservatives have their way and get rid of the consumer carbon price, they're going to have to find other ways whether it's carrots or sticks to try to modify behavior and get us back on side in terms of the reduction of greenhouse gas producing carbon. I don't know what their answer will be. It'll probably be something that'll be a lot easier to sell than the carbon tax.

PETER HAYNES: Well, as you mentioned earlier, Frank, on a couple of these topics that are more complex than just soundbites, and I think back to what you said earlier in this podcast about pathways and the importance of ensuring that we work with the province of Alberta, the trilateral arrangement with the companies, the province, and federal government to work on carbon capture and sequestration in that province. And that's another example of the complexity of this issue for Canada.

So let's flip over to baseball where we always love to finish. As of recording, the Jays are 12 and 10. And they're coming off consecutive series wins against Seattle, the Yankees, and the Padres. The starting pitching has been great, and the bullpen is getting healthy. Who is the one player you would like to see get going in order to keep us within spitting distance of both the Yankees and the Orioles?

FRANK MCKENNA: Yeah. Look, there's a lot to like. Starting pitching is terrific. We've got a deep bullpen, which is good. The coach is getting more creative. We're just seeing a lot more creativity on the bases and the way they're handling the bats. And then we're getting people like Schneider who's stepping up, Harsho who's stepping up, Ernie Clements looks like a real talented ballplayer and Biggio and so on. All of that's good.

And by the way, some really good news on the firm. I know you would follow that. But Orelvis Martinez, I think he's called, he's just hitting the stitches off the ball in Buffalo. And you've got two or three other players, Spencer Horwitz is at [INAUDIBLE] I think it is. There are at least three down there. Three bats. There's some pitching as well, but three extraordinary talents down there who are I think really starting. Yeah, Spencer Horwitz.

I think they're really starting to bash it around pretty good. So all of that's good. But you asked me for one name. If I could only give one, I would say Bo Bichette. He's a real baseball phenomenon. He's a .520 player. He's not playing up to his potential at the present time. And I think he single handedly could perhaps move the dial more than any other single person on that team.

PETER HAYNES: I like to watch the game closely. I've been focusing a lot personally on defense. And if I was an infield instructor watching Bichette, I would be cringing every time he fields a ball in the back end because he doesn't plant his feet, set his feet, and move towards target when he has time. He does that side handed flip. And just once, it's going to fly over Vlady's head and the next thing you know-- it's just totally lazy. And it drives me crazy.

And at the bat, you're right, he hasn't been what we've wanted. But both he and Guerrero, they're creeping up a little bit as the team has played well and you're noticing their batting averages moving up and. And let's hope that continues. We have a very tough series starting tonight with a team that not very many people predicted would be in first place or close to first place in their division.

And that's the Kansas City Royals. We have a four game set starting tonight, and they have been very, very good. We've had some tough series lately. So let's see if we can carry it on. But it feels like every single starting pitcher we throw out on the mound is going to give us a really quality start. That part has been really fun to watch.

FRANK MCKENNA: Well, we've got this new Cuban on the mound now. In his last two outings, I think have been masterful. He looks like a real pro, and he's still a young pitcher. Yeah. So I think there's depth there. And by the way, I didn't mention Guerrero.

I'm just frustrated with him. He he's getting a few hits. But boy, he's hitting-- and he's getting hits because he hits the ball so freaking hard. But he's not getting the big thumping doubles and triples and home runs that he should be getting, not driving people in with men on base side. I'm waiting for more from him.

PETER HAYNES: Yeah, you and the rest of Toronto collectively. And speaking of the rest of Toronto collectively, we're all trying to hope that the Leafs can somehow come back against the Bruins, although I'm not too confident right now. But we'll leave that conversation for another day if you love it. I would love it if a month from now we talk again and we're still talking about the Leafs, Frank. That'll be good things. But I'm very doubtful. So with that, I look forward to chatting again next month. Thanks for your time.

FRANK MCKENNA: Thank you.

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