THE GOVERNMENT WILL EVENTUALLY MAKE THE DECISION TO SEEK NEW SOURCES OF REVENUES THROUGH TAX HIKES, AS POLICY-MAKERS LOOK TO OFFSET RECENT SPENDING MEASURES, THE FEDERAL BUDGET WATCHDOG SAYS.
Ottawa needs ‘sharp turn’ in finances
OTTAWA • The government will eventually make the “unavoidable” decision to seek new sources of revenues through tax hikes, as policy-makers look to offset a raft of recent Liberal spending measures, the federal budget watchdog says.
In testimony before the Senate Finance Committee on Tuesday, parliamentary budget officer Yves Giroux said Ottawa will have to make a “sharp turn” in its fiscal approach in coming months. The Liberal government has introduced around $146 billion in financial aid programs since early March, aimed at shielding businesses and Canadians against the economic fallout from COVID-19.
But those programs will soon need to taper off as the Canadian economy gradually returns to health, Giroux said.
“It’s not sustainable for more than a few years,” he said. “These measures have to be allowed to sunset, otherwise we’ll be looking at a level of taxation that’s not been seen since for generations.”
As the Canadian economy reopens, rising gross domestic product is expected to cover some portion of the government’s fiscal shortfall, which the budget officer estimates could reach $260 billion in 2021. But some economists say tax hikes will be required to fill the gap.
Academics and economists around the world have proposed a number of different tax options to fill fiscal shortfalls, including anything from a tax on international tech giants to a proposal in the U.S. for a onetime wealth tax.
In an interview with the CBC earlier this month, Finance Minister Bill Morneau said Ottawa was not currently contemplating a tax hike on Canadians. The Liberal government campaigned in 2019 on a tax cut for middle-income earners, and in December announced changes that would widen exemptions for some taxpayers.
“We know that we are going to need to face up to those challenges,” Morneau told the CBC. “We also recognize that raising taxes is not what Canadians want us to do.”
The budget officer estimates that GDP will fall by 12 per cent in 2020, the largest drop ever recorded. But Giroux also stressed that Ottawa’s fiscal position remains relatively strong, and maintains a net debt to GDP ratio that is among the lowest in developed countries.
“The government, if needed, could still borrow significant amounts” of capital, he said. Ottawa spent $23 billion servicing its debt in 2019, compared to a total budget of $340 billion.
Giroux on Tuesday also raised slightly its estimate for the federal deficit in 2021, to $260 billion from $252 billion.