Ottawa’s smart answer to Trump’s tax cuts

For most of the past year, Canadian business leaders have begged the federal government to do something — anything — about the lavish corporate tax cuts Donald Trump dished out south of the border.

And for most of the past year, those Canadian business leaders have waited in vain for Ottawa’s response, increasingly fearful this country could no longer compete with the Americans, and would suffer for it.

But this week, the Liberals’ fall economic statement finally delivered the government’s answer to those pleas, and it is a smart, constructive reply. Something had to be done and they’re doing it.

No, Finance Minister Bill Morneau will not slash corporate tax rates so they match or are below the U.S. levels set by President Trump. That would have been foolish.

Instead, Morneau will deliver significant and generous tax breaks to Canadian businesses for their future corporate investments. This alternative route should deliver the relief corporate Canada demanded without draining the federal treasury to do it.

For this reason alone, the 2018 fall economic statement deserves applause — though with the proviso that the Liberals must somehow tackle their worrisome addiction to overspending in other areas.

Consider the positive, first. While Trump’s tax cuts unquestionably boosted his nation’s economy, they’ll also drive up the American government’s budget deficits by a jaw-dropping US$1.5 trillion over the next decade — and quite possibly cripple the economy in the process.

That’s the risk Morneau would have taken had he copied Trump. Any short-term gain would have likely been the prelude to longer-term pain. And all the tax revenue Ottawa gave up would have only aggravated the Liberals’ struggles with deficits and debt moving forward.

Far better to provide Canadian businesses with accelerated tax writeoffs for their capital investments, which is what Morneau has offered. Not only will this close the competitive gap with U.S. businesses, it will encourage new spending in machinery, clean energy equipment, computers, software and other essentials in this country.

There will, of course, be a considerable cost to the Liberals’ revenue stream — about $14.4 billion over six fiscal years. But that’s less than half of what it would have cost for Morneau to match Trump’s tax cuts. No wonder the business community is cheering Morneau’s plan.

This is also an occasion where good policy translates into shrewd politics. Morneau’s economic manoeuvring has, to a degree, hogtied the federal Conservative opposition. Before this week, the Conservatives gleefully slammed the government for doing too little to help Canadian businesses.

Now the Liberals have provided that help, the only thing left for the Conservatives is to rail against Liberal deficits.

But the Conservative Leader Andrew Scheer and other government critics must know the only way to pay for that business support was through some deficit spending. Sorry, Mr. Scheer. You can’t have your tax breaks and eat the deficit, too.

That said, the Conservatives can’t be faulted for at least reminding Canadians that the deficits Prime Minister Justin Trudeau once promised would be fleeting will continue — larger than he promised and with no end in sight.

We can’t help but wonder if a little more frugality would have allowed the Liberals to provide their tax breaks while ending this year with a deficit markedly lower than the $18.1-billion whopper they’re looking at. When, and that’s not if, the next recession hits and the debt hits the fan, Canadians may regret their — and the Liberals’ — lack of commitment to balanced budgets.