Get reform back on track

Finally, some good news with Bill Morneau’s name on it, and not a moment too soon. The finance minister has been shooting himself in the foot for weeks now, but the measures he announced on Tuesday are positive moves that should help the Trudeau government get back on track.

Indexing the Canada Child Benefit, effective next July, will ensure that this excellent program, perhaps the government’s single most important social initiative, isn’t eroded by inflation. Millions of children in low-income families will benefit.

And putting an extra $500 million into a tax benefit aimed at helping lower-paid workers get off government assistance will help more of them get into full-time work.

Both measures will put more money into the hands of the people the government constantly says it wants to benefit most, the middle class and “those seeking to join the middle class.” Morneau’s fumbling on tax reform and how he handles his personal wealth have badly distracted from that goal, but it still makes sense for both economic growth and social justice.

That’s especially true at a time when Canada’s economy is roaring ahead, growing at a torrid pace of 3.1 per cent this year and leading all the G7 economies.

That extra wealth should be shared, and one way to do it is to make sure the government strengthens programs aimed at putting more money in the hands of those who would otherwise fall behind. Maintaining the value of the child benefit and making sure more people qualify for the working tax benefit both pass that test.

At the same time, the stronger-than-expected growth is allowing the government to pare back its projected deficits. Last March it forecast a shortfall this year of $25.5 billion; that’s now projected to be considerably smaller, at “just” $18.4 billion.

That’s the good news. The worrisome part is that the government has not demonstrated that its admirable commitment to supporting those at the middle and lower rungs of the economic ladder is truly sustainable.

For that to happen, it needs to properly address its revenue problem — the fact that billions are lost to ineffective, outdated or simply unjust tax breaks that disproportionately benefit the corporate sector and the wealthy.

Back in the halcyon days of 2015 the Trudeau Liberals identified tax reform as one of the biggest opportunities to fix federal finances. The party estimated the government could save $3 billion a year just from ending tax expenditures that don’t accomplish anything worthwhile.

Fast-forward two years and tax reform looks more difficult than ever, thanks in large part to Morneau’s epic mishandling of the file since he introduced a package of reforms in July.

Faced with an uproar from small business, doctors and other professionals, the minister retreated and has ended up with a “reform” that seems to be costing more than it will save. He is cutting the small business tax rate from 10.5 per cent to 10 per cent next year and 9 per cent the year after that — a move the government now estimates will cost it $1.3 billion over the next three years.

While the economy is booming the government can afford to have it both ways — increase benefits for the middle class and working poor, while sweetening the pot for small business. But the economy will inevitably hit bumps in the road (starting with the Trump threat to NAFTA) and to make its vision sustainable over the long run the government must produce a plan to shore up its finances with true tax reform.

Otherwise, even a government with progressive intentions will eventually run into the wall and be forced into a return to austerity. That’s what happened in the 1990s, and the Trudeau Liberals should have learned that lesson. Anything else amounts to magical thinking.

To make its vision sustainable over the long run, the Trudeau government must produce a plan to shore up its finances with true tax reform