ROSY FIS­CAL UP­DATE?

Chal­lenges yet to come: Ivi­son

Calgary Herald - - NEWS - John IvI­son

The Lib­eral gov­ern­ment re­leased its fall fis­cal up­date Wed­nes­day, mak­ing the bold pre­elec­tion claim that the land is strong — even if it may not feel that way if you’re try­ing to sell a house or work in the oil­patch.

In fair­ness things are go­ing pretty well, on the back of surg­ing de­mand from the U.S. But there ap­pears to be a supreme con­fi­dence that it will be ever thus. Scant pro­vi­sion is be­ing made for the re­ces­sion rum­bling to­ward us in­ex­orably, like a win­ter storm.

The gov­ern­ment gave it­self a clean bill of health, point­ing out GDP growth is fore­cast at two per cent for the next two years, be­fore slow­ing to a still re­spectable 1.6 per cent.

Un­em­ploy­ment is fore­cast to be be­low six per cent over the next two years, while the fed­eral debt-to-GDP ra­tio is pre­dicted to con­tinue to tick down­ward.

The gov­ern­ment con­cluded its re-elec­tion pitch by claim­ing it has ful­filled a third of its man­date promises, with “progress made” on the other two-thirds.

For a gov­ern­ment head­ing back to the polls next year, it is, at first blush, a solid base from which to launch a cam­paign for an­other man­date.

Fi­nance Min­is­ter Bill Morneau said Wed­nes­day that a mid­dle-class fam­ily of four is now $2,000 bet­ter off, thanks mainly to the Canada Child Ben­e­fit.

When it comes to spe­cific mea­sures the fall up­date, given the ti­tle “In­vest­ing in Mid­dle-class Jobs,” is a mod­est doc­u­ment, with much to be mod­est about.

But it did in­tro­duce a num­ber of mea­sures aimed at ad­dress­ing U.S. Pres­i­dent Don­ald Trump’s cor­po­rate tax cuts, in­clud­ing tax in­cen­tives to en­cour­age busi­nesses to in­vest in new as­sets like ma­chin­ery and equip­ment.

The new plan will “give Cana­di­ans the help they need to suc­ceed, mak­ing smart in­vest­ments to grow our econ­omy for the longterm, while we bring the books back to­wards bal­ance,” Morneau said — the first time any­one can re­mem­ber a Lib­eral fi­nance min­is­ter talk­ing about bal­anced bud­gets since the days of Paul Mar­tin, the deficit­slayer.

On the ba­sis of the spin, were an elec­tion held to­mor­row there would be line­ups at the polling booths to laud the Lib­er­als for their in­cred­i­ble feats of eco­nomic alchemy.

Need­less to say, while the fis­cal up­date tells the truth it doesn’t tell the whole truth.

Tax rev­enues for the first six months of the fis­cal year were up 10 per cent, or a whop­ping $13 bil­lion, but growth is patchy. The hous­ing mar­ket — for so long a driver of eco­nomic growth — has recorded three quar­ters of con­trac­tion.

HELP ... WHILE WE BRING THE BOOKS BACK TO­WARDS BAL­ANCE.

The oil­patch ap­pears to be go­ing through some­thing of an ex­is­ten­tial cri­sis, as jobs and in­vest­ment con­tinue to bleed south of the bor­der. In the Fi­nan­cial Post this week, for­mer En­cana CEO Gwyn Mor­gan noted with alarm how his for­mer com­pany has “ex­ported” it­self to the U.S. He blamed Justin Trudeau and the Lib­eral gov­ern­ment for a litany of bad pol­icy de­ci­sions — from the oil tanker ban, to killing the North­ern Gate­way pipe­line; from the in­tro­duc­tion of “up­stream emis­sions” in pipe­line reg­u­la­tory hear­ings to bill C-69, the im­pact as­sess­ment act — that has all but killed Canada’s most eco­nom­i­cally im­por­tant in­dus­try.

The fall up­date of­fers lit­tle in the way of com­fort for pro­duc­ers, or for Al­berta’s pro­vin­cial gov­ern­ment, faced as they are with a price dif­fer­en­tial that is reach­ing record highs.

What it does con­tain is a range of tax changes to en­cour­age busi­ness in­vest­ment in Canada. Ar­guably, the mea­sures should have been in­cluded in the spring bud­get, flush from the wind­fall of three-per-cent growth in2017.

But since busi­ness in­vest­ment and ex­ports will be re­lied on to make a greater con­tri­bu­tion to eco­nomic growth, it is timely that the Lib­er­als have fi­nally ac­knowl­edged that the golden goose won’t keep lay­ing with­out some en­cour­age­ment. This has not been a gov­ern­ment overly con­cerned with wealth gen­er­a­tion dur­ing its first three years in of­fice.

Busi­ness groups had called for Morneau to re­duce the cor­po­rate in­come tax rate across the board but the fi­nance min­is­ter deemed his room for ma­noeu­vre was lim­ited, given the need to keep the “fis­cal an­chor,” the debt-to-GDP rate, tick­ing down. The new mea­sures will cost $14 bil­lion over the next five years, so this is not chump change. But the money ap­pears to be tar­geted, since it al­lows Canada to mar­ket it­self as the low­est mar­ginal ef­fec­tive tax rate (METR) in the G7.

For many in­ter­na­tional com­pa­nies, it is the METR, the cu­mu­la­tive rate of taxes that af­fect busi­nesses, that is a key de­ter­mi­nant of where they will in­vest.

It is a cre­ative so­lu­tion that will help busi­nesses write off as­sets in a range of in­dus­tries at a faster rate — in­clud­ing in­tan­gi­bles like com­puter soft­ware — even if it doesn’t ad­dress the spe­cific prob­lems fac­ing the oil in­dus­try.

At the very least, it is “in­vest­ment” that may have a pro­duc­tive out­come — un­like many of the tax dol­lars that have been tossed hither and thither in the past three years. You only get it if you in­vest.

The real prob­lem is that, for all the “con­fi­dence in Canada’s eco­nomic fu­ture” the doc­u­ment ex­pressed, a down­turn is com­ing as surely as win­ter fol­lows fall.

When it does, the debtto-GDP ra­tio will not keep fall­ing, be­cause GDP will shrink. That is when a reck­on­ing will take place.

The mea­sures an­nounced in the fall up­date will add to a deficit that is set to re­main in dou­ble fig­ures as far out as the De­part­ment of Fi­nance projects.

The much-vaunted $2,000-a-year bo­nanza for the fam­ily of four is paid for with bor­rowed money. It is not just Con­ser­va­tives who see that as a “raid on fu­ture gen­er­a­tions.”

For all the bil­lions be­ing added to the na­tional debt, the ben­e­fits are not be­ing felt by ev­ery­one.

These are the good times but for many peo­ple, they don’t feel that good. The gov­ern­ment boasts about ris­ing wages but for the past three years, real wages av­er­aged gains of just 0.3 per cent, ver­sus one per cent for the pre­vi­ous decade.

Ris­ing in­ter­est rates are also mak­ing life tougher.

But there is none of this nu­ance in the sunny days doc­u­ment tabled by the gov­ern­ment. In a self-as­sess­ment of their own bril­liance, the Lib­er­als judged their com­mit­ment to bal­ance the bud­get by 2019-20 as a mea­sure where ac­tion has been taken and “progress made,” even if, sadly, it is “fac­ing chal­lenges.”

That bla­tant nose-stretcher comes just 25 pages after the sum­mary state­ment of trans­ac­tions that says the deficit in 2019-20 will be $19.6 bil­lion. Some progress, some chal­lenge.

The en­tire doc­u­ment should come with a warn­ing sticker: “Cau­tion — stormy ob­jects in your mir­ror are closer than they ap­pear.”

THE $2,000-A-YEAR BO­NANZA FOR THE FAM­ILY OF FOUR IS PAID FOR WITH BOR­ROWED MONEY.

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