FEDS FIDDLED, BIZ BURNED
Fiscal update exposes original flaw of Trudeau’s approach to budget
Federal Finance Minister Bill Morneau just announced something that was quite needed on Wednesday. But how he did it, and how he’s going to pay for it, that’s another question.
For months now business leaders have been calling on the Liberals to help them out with their competitiveness problem. Ever since President Donald Trump slashed taxes in the United States, Canada’s been a less attractive place to do business.
“Unfortunately, we’re witnessing this flight of capital out of Canada on many different fronts,” Niels Veldhuis, president of the Fraser Institute, said in a statement released Monday.
This troubling new reality is what’s led the Canadian Manufacturers & Exporters, Canadian Association of Petroleum Producers, Canadian Federation of Independent Business and (you get the idea) others to call for immediate action.
Morneau has clearly heard them and decided to act. The costliest measure by far of what was announced in Wednesday’s minibudget is a change to the rules that allows businesses to write off more expenses than they already do for items like machinery and equipment. These accelerated investment write-offs, as they’re called, don’t come without a cost though. These new write-offs alone are expected to see the government forego around $14 billion in revenue over the next five years.
Some on the left are already arguing this is a case of Trudeau bailing out his rich buddies with nothing in it for the regular folks. That it’s basically forking over billions to big business. Not so.
For starters, a write-off is not the same as, say, flat out corporate welfare payments (which we have too much of as it is). But more importantly, the plain truth is that Trump has made the U.S. look like a much better jurisdiction to do business in and if we don’t work to match him, more capital will flee and everyone’s going to suffer from an economic hit.
So what Morneau announced was good news then? Yes and no. The challenge is the write-offs and other business measures announced Wednesday are pushing the projected deficits up big time. We’re now looking at $18.1 billion of red ink for 2018. And we’re still seeing deficits as far as the numbers go, clocking in at $11.4 billion in 2023.
I had a good chuckle reposting to Twitter a CTV News headline from 2015 that reads: “Trudeau says vow to balance budget in 4 years cast in stone”. Some vow. Some stone.
Clearly Trudeau threw that promise out the window long ago. That’s old news. But what’s new is that he should now be able to see clearly just how reckless that whole attitude was in the first place.
Experts, academics and economists argued over the past couple of years that now was not the time to balloon the deficit and add to the debt. You only do that when you’re in genuinely bad economic times and there is an emergency situation to contend with. You don’t do it just for some vague notion about growing the economy or supporting the middle-class. Because there could soon come a time when there really are troubles afoot and you need to act to deal with them. Like a recession. Or like the very issue Trump placed on our lap.
This is really the basics of what’s called Keynesian economics, named after the godfather of liberal deficit spending. Trudeau didn’t follow these rules though. He keep hiking the deficits. And now we finally find ourselves in a situation where we arguably do need to engage in a bit of deficit spending — to get competitive with the U.S. — but because we were so loose with our budgeting in the years beforehand the measures undertaken now will have a disproportionately larger negative effect on our budget. We’ve got less room to absorb these expenses because we’re already more leveraged than we need to be.
This is the original flaw to Trudeau’s approach to budgeting. Prepare for bad times while times are good. We never did that. And we’re in a worse off situation because of it.
Now we just need to hope the economy doesn’t turn sour again in the next few years. What will we do then? A topic for another day.