SMALL BEER IN ELECTION YEAR
Budget sees big gov’t living within its means
Any pre-election budget puts two broad claims before the public. One: elect us, look what we’ve done! Two: elect us, look what we plan to do!
Based on the former claim only, the Conservatives would have a decent case to make. Over the last several budgets the Tories have shown sustained discipline over spending, while reducing corporate tax rates, arriving in the end at the longpromised balanced budget.
If the latter was achieved with the help of much jiggery-pokery — a sale of General Motors shares here, a raid of the contingency reserve there — it does not greatly matter. On a $2-trillion economy, whether you’re $2 billion in the red or black is hardly worth worrying about, at least if economics, rather than politics, is your concern. It’s the trend that counts, and the trend is from deficit into surplus, and a steady reduction in the debt-to-GDP ratio.
The lowest net debt-to-GDP ratio in the G-7, and the lowest effective corporate tax rate: these are genuine achievements.
It’s all relative, of course. The restraint the government has imposed in recent years is only from the all-time peak to which the same government pushed spending in 2009. Indeed, measured in constant dollars per citizen, this government is responsible for 10 of the 12 highest-spending years in our history (see chart), including the current fiscal year.
It never should have gone so heavily into deficit as it did — the recovery had already begun, and the subsequent contribution of any alleged fiscal “stimulus” was negligible — but it did so to the cheers of most of the commentariat, when they were not demanding more. So it is a bit much for the same people now to complain at the resulting increase in the debt.
Sourpusses like me might — but even we would have to admit the Tories have done a better job of bringing spending back into line than we expected. And while there is some loosening of the purse strings in the current budget — spending will increase by 3.4 per cent in the current fiscal year, and 4.2 per cent the next — this is a long way from the kind of preelection spending sprees that once were traditional.
The proposition the Tories put before the public, then, is not small government, or even smaller government, but big government that lives within its means. After 10 years of Conservative rule, the federal government does virtually everything it ever did, pokes its nose into just as many areas of national life, taxes, subsidizes and regulates very nearly as much, and at considerably greater expense (even after six years of restraint, spending is still 12 per cent higher, after inflation and population growth, than it was when the Tories took power). It just does all this, now, barely, in line with the revenues available to it.
And, in the current budget, it proposes to do even more. If the sum total of what the Tories plan to spend and tax is within the bounds of endurance, the specific ways they propose to spend and tax it — the basis, one presumes, of their election platform — are almost universally bad ideas. I do not include in this the almost universally reviled proposals to allow couples with children to split their income for tax purposes, or to increase the annual limit on contributions to Tax-Free Savings Accounts, or to impose some mild curbs on governments’ ability to borrow. Not only are these generally sound policies, but they are important promises the Conservatives have made in the past which it is gratifying, not to say unusual, to see them keep.
It’s the new measures the government has in mind that are generally awful, if awful in a way familiar from previous budgets. The 10-year accelerated capital cost allowance for manufacturers is simply a subsidy by a complicated name. The Automotive Supplier Innovation Program is unlikely to yield any more economic benefit than the dozens of other “innovation” programs on the federal books. The $1-billion-a-year — like many of the budget’s pricier items, available only after 2018 — Public Transit Fund may do many things, but it will most assuredly not reduce traffic congestion, as claimed.
The “national aerospace supplier development initiative,” the expanded mandates for the wholly superfluous Business Development Bank of Canada and Export Development Canada, the ludicrous “Defence Procurement Strategy” — if anyone was in any doubt that this government has no interest in free markets, they need look no further. And I haven’t even mentioned the proposal, still unrepudiated, to regulate every price in Canada into line with its U.S. counterpart.
This sort of meddling in the corporate sector is mirrored by the government’s determined efforts at social engineering on the personal side. The doubling of the children’s fitness tax credit, announced last fall, is only the most overtly foolish. But now brace yourselves for a hike in the lifetime capital gains exemption for farmers and fishermen, and the reduction in the already heavily discounted small business tax rate: measures that are both distortionary and, given the income bracket of the typical beneficiary, regressive.
But these are, mercifully, small beer. The only really costly policy mistake is the broadening of the Universal Child Benefit, on its own a defensible supplement to childcare costs (and vastly preferable to the direct subsidy to daycare operators preferred by the Official Opposition) to include children of school age. Sorry, did I say mistake? That implies the Tories do not know what they are doing. Indeed, it implies that policy has anything to do with it. It’s an election year. Just console yourself it could have been worse.