The Conservatives’ fiscal strategy

The following is excerpted from the Conservative election platform, p. 159, in a section headed, A Detailed Plan to Secure Social Services.

Spending to protect Canadians during the pandemic is the right thing to do, and Conservatives have supported it. But we can’t leave unsustainable debt for future generations. Once the recovery starts, the Conservatives will get spending under control. As Canadians are vaccinated and the economy reopens, we will wind down emergency support programs responsibly. We will ensure that stimulus measures are targeted and time-limited to avoid a structural deficit. And we will get the economy growing again to secure the revenue needed to pay for the government services Canadians depend on. Restoring Canada’s finances requires getting back to robust economic growth of three per cent or more per year, which is the goal of our jobs plan.

The deficit soared to $354 billion in 2020-21, which seems daunting. But it’s much easier to develop a road back to balance when we consider the three components of the deficit:

❚ $30 billion of pre-existing deficit: the amount by which spending exceeds revenues in a “normal” economy growing at 1.6 per cent.

❚ 70 billion from automatic stabilizers: government revenues dropped due to the recession, as companies and individuals see their income drop and therefore pay less tax. At the same time, government expenses for Employment Insurance and other social support programs have increased.

❚ $250 billion in COVID-19 emergency spending: This includes $80 billion for CERB and $82.3 billion for the wage subsidy (CEWS), the GST and Canada Child Benefit top-ups, funding for provinces and health care and approximately 70 other spending measures.

As we implement our jobs plan, we will get Canadians back to work, meaning lower unemployment and higher tax revenues for the government. As we do so, we will also wind down the emergency spending in a responsible way. Our plan for Secure Jobs and Economic Growth will therefore reduce the deficit by almost 90 per cent by repairing the economy.

There will be some costs along the way — incentives and other spending to get Canadians back to work. This spending is time-limited and designed to kick-start the economy. The highest level of spending will be in year one, with spending on these stimulus measures winding down over five years. This short-term spending represents most of the cost of our plan and will directly reduce the deficit by reversing the automatic stabilizers.

A crucial part of our plan is a set of new investments in Research & Development, high-speed internet access, and tax measures such as the patent box (which cuts the tax rate in half on income earned from patents on innovative products developed in Canada). These will have long-term benefits to the economy, making us more competitive and generating more future tax revenues. That is why our priority is to get businesses rebuilt and investing again and get people back to work.

That’s the way to reduce the deficit. The jobs and the economic recovery come first and then the deficit will come down and the emergency spending won’t be needed.