Saturday, March 26, 2016

One More Sacred Cow

The Liberals' budget has slain one sacred cow -- the notion that deficits are intolerable. Scott Clark and Peter Devries write that there is one more cow to be dispatched -- the idea that Stephen Harper's cuts to the GST are cast in stone:

How will these future growth initiatives be financed? Or, for that matter, how will the remaining election promises be funded, if at all? The government is already forecasting a deficit of about $29-billion in 2016-17 and 2017-18, falling to just under $15-billion in 2020-21. The budget projects a relatively stable debt-to-GDP ratio over the period of about 31 per cent. In other words, running larger deficits in future budgets to finance new spending is not an option, since this would violate the government’s only remaining fiscal anchor.

There is some cushion in the budget, which the government might be tempted to use for new spending. The deficit projections include a $6-billion annual prudence reserve, which reflects the high level of risk and uncertainty in the global economy.

The real problem is that the Liberals are still playing by Harper's rules:

Currently, the government is trying to squeeze a Liberal policy agenda into financial constraints imposed by the previous Conservative government. Former prime minister Stephen Harper must be quietly chuckling to himself as the government struggles with this impossibility. After all, he set the trap for future governments by cutting two points off the goods and services tax, which “starved” the federal government of $15-billion a year. He was betting, perhaps correctly, that any future government would be afraid to restore the cuts to the GST.

Clark and Devries believe that now is the time to call in Harper's chips:

Would Canadians accept restoring two points to the GST in order to finance programs and services they believe are important to Canada? We think they would. Canadians (especially seniors) are, largely, “small c” fiscal conservatives. They don’t want the 1970s and 1980s all over again. They don’t want another 1995 budget (we certainly don’t). They don’t want unchecked deficit financing and they will punish any government that tries it.

They believe that Harper's GST cuts were "the worse tax policy change ever made."
There is one more sacred cow to go. 



Anonymous said...

GST is a regressive tax that hits those with the lowest incomes the hardest.

You can correct for this with income tax refunds, or GST rebates, but the very poor don't participate there.

Hugh said...

There appears to be an assumption that the debt to GDP ratio will remain stable.
This means the GDP would need to grow, since debt is growing.
So their plan assumes infinite GDP growth, which is neither possible nor desirable, particularly when we are trying to reduce our GHG emissions.
The idea that we 'need' to grow the economy is the problem.

Hugh said...

I'm listening to the govt on the radio now.
They're fixated on the debt to GDP ratio.
They're desperate for GDP growth.
They want to add debt to grow the GDP, as the way to keep the debt/GDP ratio stable.
Deal with excessive debt by adding more debt. Good luck with that.
Gotta grow, infinitely!

The Mound of Sound said...

I'm still waiting to see this government take a genuinely "liberal" stance on any of the tough issues. I hope they'll get there eventually because they have to get beyond the C-51/BDS/Saudi/bitumen pipeline rut.

Trudeau has done a lot of the easy stuff - re-opening Coast Guard stations, freedom for government scientists, CBC funding - the sort of things which didn't require him to sit down and convince Canadians to support even at some personal sacrifice. The essence of political leadership is the ability to persuade the public to support what would otherwise be unpopular measures. That we haven't seen yet.

Steve Cooley said...

I agree, the deficit is as much a revenue problem as spending problem. I disagree that the revenue missing is from the GST. The GST is a flat tax that costs low and moderate income people more than it costs high income people. For example, when a hot water heater that costs $300 fails, the GST on it will be 5%x$300=$15 and the bill for the water tank will start at $315 and have a PST (or an HST) and labour added. For those of us who have over $2500 of net revenue a month, that is easy to pay. For those of us who have a net monthly revenue of $1000, that tank likely will be paid over a couple months. Both people pay the same GST. One has to postpone some other purchase, the other has to for a doughnut or two.

The missing revenue is from the corporate tax structure and the personal income tax structure. Our oil industry is receiving more welfare than our homeless and hungry citizens. The oil industry is wealthy and does not need the deletion allowances, capital cost allowances and many more tax shelters that most of us have never heard of. Those of us who have gross incomes over $250,000 (a relatively large number I picked out of the air) also have too many ways to reduce our taxable incomes to low levels.

Owen Gray said...

I agree that corporate taxes are too low, Steve. The idea behind the GST was to tax consumption and do something about the mess we are making of the planet.

Owen Gray said...

I agree, Mound. Trudeau has dealt with the low hanging fruit. He still hasn't tackled the tough stuff.

Owen Gray said...

I don't know if they're assuming infinite growth, Hugh. If they're serious about their environment commitments, they'll have to devote themselves to sustainable growth.

Owen Gray said...

A guaranteed annual income might make a difference, Anon.

Dana said...

Trudeau is going to pan out much like Obama I suspect. Obama wasted most of his honeymoon political capital in dithering about and trying to get the Repugnicans to come to the table. Anyone who had been paying any attention knew that wasn't going to happen and by the time Obama accepted that his honeymoon political capital was all but exhausted.

I don't think Trudeau and his caucus are going to do any of the hard stuff. Marijuana legalization has already been shuffled off the agenda with the appointment of Bill Blair of all people to oversee it. Seniors and Employment Insurance will be trumpeted as a promise kept when really it's only a barest beginning. Ditto Indigenous People. Ditto CBC.

As the holes get deeper and the non-operational promises list gets longer the resentment will rise among the 2 million or so new voters as they realize they've been hood winked. They'll only go back to the booth if someone else inspires them again.

And just who the hell might that be anyway? The beard of Blair? Rona the Rambler?

Happy Dying in misery with nails in your hands Day

Owen Gray said...

Friday is a reminder of just how cruelly human beings can treat each other, Dana. On the other hand, for some people, the rest of the story is about hope. I'm not prepared to give up on Justin just yet. Call me a foolish optimist.

Dana said...

I'm not really giving up either because events will catch up to this government, as they will with any government, and I *do* know I will much prefer the sunny ways response than the dour, huddled in the last pew, muttering darkly response we've seen the past ten years.

Owen Gray said...

I agree, Dana. Trudeau could do worse than to choose Wilfred Laurier as a mentor.