Balancing books may require some risk

Ahead of Tuesday’s federal budget, speculation is rife that Chrystia Freeland, the federal finance minister, will raise taxes on the wealthy and on corporate profits.

That would have little impact in balancing the books.

Instead, we should debate two measures that have long been contemplated but not enacted because they are regarded as political poison.

If you have some cognac handy, reach for it now.

Two reforms that would help us achieve fiscal balance are raising the age of eligibility for Old Age Security to 67 from 65 and restoring the federal portion of the GST to seven per cent from five per cent.

The imperative to significantly increase government revenues is inescapable.

And restraint in government spending cannot be the sole means of returning to the budget surpluses that Canada ran for 11 consecutive years beginning in the 1990s.

There are limits on taxing the rich. Canada’s top statutory tax rate is already the third highest in the G7. At 53.5 per cent to America’s 43.7 per cent, a further increase in the top rate risks tax flight.

It’s the same story with Canadian corporate taxes. At 26.2 per cent, they are higher than the U.S. rate of 25.8 per cent and the OECD average of 23.6 per cent.

(Small business in Canada is taxed at nine per cent, recognizing its role as the country’s biggest employment provider.)

Meanwhile, OAS payments are among the biggest and fastestgrowing expenditures for the Canadian government.

They are expected to rise to $96 billion in 2027 from $69 billion last year.

We have the option of aligning with the U.S. by raising the OAS eligibility age to 67 from 65.

The effective retirement age, if not the official one, has been rising for years.

And even with record levels of immigration, Canada still suffers skills shortages.

The country benefits from the work of those who toil beyond age 65.

(Full disclosure: At 66, I’m one of the latter.)

Soon after it first took power in 2015, the Trudeau government scrapped prime minister Stephen Harper’s plan to raise the OAS eligibility age to 67.

That does not make Harper’s initiative a bad idea, however.

In 2019, the Canadian Institute of Actuaries presented a cogent argument for why Canadians should be allowed to delay their OAS payments to as late as age 75, in return for much bigger OAS payments when they take them.

And raising the federal portion of the GST to its original seven per cent from the current five per cent would also have a meaningful impact in restoring our fiscal health.

It needn’t be a permanent measure.

We have precedent for that. In two stages in 2006 and 2008, Harper cut the federal portion of the GST to five per cent, where it remains.

In 2021, there were calls among public policy experts to restore the federal portion of the GST to its original seven per cent to start paying down the debt related to COVID-19 that Ottawa amassed.

The idea went nowhere because the GST is so loathed.

But raising it is a sensible measure whose proponents include the C.D. Howe Institute.

In its proposed budget measures for 2022, the think tank said Ottawa needs greater economic resources to repair the fiscal damage from COVID and to finance demographic change and the energy transition.

To that assertion, add this year’s budget outlays for affordable housing, pharmacare and increased military spending.

By the C.D. Howe Institute’s calculations in its 2024 budget recommendations, published in February, a federal GST rate of six per cent in 2024 increasing to seven per cent in 2025 would raise $8.8 billion in fiscal 2024-25 rising to $28 billion in 2028-29.

That would put a serious dent in federal deficits, the latest of which, in Freeland’s Tuesday budget, is expected to be about $40.1 billion.

In 2022, the Canadian federal portion of the GST was the lowest among 37 OECD member countries.

The U.S. alone in the OECD does not have a federal sales tax, and instead imposes municipal as well as state sales taxes. The combined sales tax is10.25 per cent in Chicago, for instance, and 8.9 per cent in Manhattan.

At five per cent, the federal portion of Canada’s GST was dwarfed by the OECD average of 19.2 per cent in 2022, and the Scandinavian average of 24.6 per cent.

Hate it though we did, Canadians became accustomed to a seven per cent federal portion of the GST for 15 years after its introduction in 1991, and a six per cent rate between 2006 and 2008.

And we’d go on hating a combined Ontario HST of 15 per cent, up from 13 per cent, if the original federal seven per cent was restored.

But the alternative is the harsh austerity measures of the mid-1990s when Ottawa and Ontario were compelled to reduce huge deficits.

Let’s not put ourselves through that again.

While regarded as political poison, raising the age of eligibility for Old Age Security to 67 from 65 and restoring the federal portion of the GST to seven per cent from five per cent would help Ottawa achieve fiscal balance