They budget better in Saskatchewan
Two very different budgets on t he same day. There has been l ots of talk about the federal one. Saskatchewan’s budget was much less noticed. The Saskatchewan one deserves more credit.
The federal budget has no plan to balance the books in the foreseeable future. The Saskatchewan budget will balance the books within three years, even though it has faced plummeting resource prices since 2014.
The federal budget focuses on growth through a plethora of government spending programs. The Saskatchewan budget uses tax reform and spending restraint to improve competitiveness.
The federal approach is based on the philosophy that the government should direct the private sector. Saskatchewan looks to reduce barriers to growth by getting the government out of the way.
The federal budget’s major theme — innovation — is based on the notion that we have an inept private sector. The government is picking six “winning” sectors, ranging from agri-food, advanced manufacturing to clean tech, that it will get behind, since entrepreneurs could never make a go of a winning idea without government involvement. And since the government thinks private firms best compete in a “supercluster,” it will pay to make that happen, too.
The federal budget sprays out minute expenditure programs like a lawn sprinkler. For innovation. Skills training. Stronger communities. Millions here, millions there, spread over five years, and appealing to merely a select few.
And if you were looking for any tax relief, you won’t find much, unless you need a caregiver. The government will be squeezing a half-billion dollars in higher taxes next year. There will be more after it finishes its review to close down certain tax expenditures. The small businesses and entrepreneurs we rely on to innovate should brace themselves for a heavier tax load. For a federal budget purportedly focused on innovation, if offers shockingly little in terms of creative ideas to spur innovation, and plenty to squelch it.
The f eds could l earn something from Saskatchewan.
There, the big theme is shifting taxes from income to consumption — and improving competitiveness. Personal income tax rates will be reduced for all categories by one point — Saskatchewan will next year have the lowest provincial top income- tax rate in the country at 14 per cent ( 47 per cent combined with the federal rate). The corporate income tax rate will drop by one point to 11 per cent, matching the rate in British Columbia ( manufacturing income will be taxed at nine per cent).
The provincial sales tax will be increased by one point to six per cent and its base expanded to include restaurant meals, kids clothing, insurance premiums and other assorted things that were once exempt. An investment tax credit for manufacturing machinery will be bumped up from five to six per cent to offset the impact of the higher PST.
Other measures include: a lower tax rate on income earned from commercialization of research and development ( and a scaling back of R and D tax credits), a reduc- tion in tax credits (including the elimination of tuition and education tax credits), and higher fuel taxes.
Overall, these changes go in the right direction to improve competitiveness. The Saskatchewan tax reform would even have a bigger impact on growth by pursuing a level playing field among businesses ( such as removing over- the- top incentives f or manufacturing) and harmonizing the PST with the federal GST to remove taxes on business capital and intermediate inputs. Maybe, with base broadening, Saskatchewan might be willing to pursue a harmonized sales tax, which would be more conducive to growth.
To balance the books in three years, Saskatchewan keeps the lid on spending, including public sector compensation. Infrastructure spending will sharply rise as well as increased support for low- income households as an offset to the sales tax increases. It will unload the money-losing Saskatchewan Transportation Co., a baby step towards more privatization, which would help the province become even more competitive.
Overall, the current deficit of $ 1.3 billion forecasted for 2016-17 is expected to fall to $ 685 million ( including a $300 million in contingency funds). Saskatchewan plans to bring its roughly $ 15- billion budget into balance by 2019–20.
Saskatchewan’s budget is a dream for fiscally prudent voters: it keeps spending down, starts balancing the books, and shifts taxation to less distortionary revenue sources.
Next time this year, these budget makers could be facing a far different situation if the U. S. sharply reduces personal and corporate income taxes by 2018 as Republicans plan. Saskatchewan has at least prepared itself better than Ottawa has.