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Monday, February 10, 2014

Flaherty to deliver budget Feb. 11

Finance Minister Jim Flaherty will unveil on Tuesday what is likely the final deficit-budget for the next few cycles, setting the stage for balancing the books just ahead of the federal election in 2015.

The Tories, apparently, have been aggressively cutting federal spending and acting, finally, like the fiscal conservatives we thought we had elected back in 2011.

This cost cutting has probably been enough to balance the budget for the upcoming year;  the Conservative government, however, is unlikely to do so as it will only add to the pressure from various sources to increase program spending on all manner of things.

We can expect to see new spending on infrastructure and education reform on Native reserves this year, followed by increased infrastructure spending and fulfillment of promises made earlier—like income splitting—in the election year. I believe in 2015 we might also see some targeted tax reductions.

So, once in surplus, will the government reduce tax even further, or will it make a serious attempt to bring the national debt back to pre-recession levels? For some, the budget is never really in balance or surplus so long as it includes significant debt charges. Every cent paid to service debt is, after all, money not in taxpayers’ pockets or available for other priorities.

Government debt, from all levels of government, including crown corporations and agencies, is nearly 105 percent of GDP, worrisome levels indeed. In Ontario alone, government debt charges (interest) of $10.6-billion a year is now the third-largest line item in the budget, exceeded only by health care and education.

The Tories boast about Canada’s apparently low national debt-to-GDP ratio of 36 per cent. But that’s only part of the story. To allow credit room for the provinces, crown corporations and pensions, a responsible level for Canada’s national debt would be more like 20 to 25 per cent, and even lower in good times.

Here’s an extract from an article in Maclean’s last February by Tamsin McMahon’s :

With in federal debt, Canada’s national debt-to-GDP ratio looks reasonable at 36 per cent, compared to, say, America’s 72 per cent. But add in the estimated $589 billion in provincial debt and we’re suddenly at around 86 per cent, putting us close to the 90 per cent debt burden analysts say begins to harm economic growth. Factor in other debts, such as pension liabilities and the debts of Crown corporations, and Canada’s debt suddenly rises to 104 per cent of GDP, according to the International Monetary Fund. (By comparison, Italy stands at 126 per cent.)”

Hmm… . Think maybe a fiscal conservative government may want to give paying down the federal debt a high priority, especially since higher interest rates may soon be upon us?

And what about corporate tax? I don’t see a change here, even though much has been made by opposition parties about the lack of spending by corporations. The New Democrats moan that corporations are not putting back into the economy the money they have received in past tax cuts. This demonstrates the mindset of these people.

Past tax cuts have allowed corporations to keep money they earned. It is their money in the first place, i.e., the government never gave corporations the money.

To hear Tom Mulcair and his guys tell it, one might conclude the Dippers believe all profits made by corporations belong to the government—i.e., 100 per cent corporate tax—which the government then gives back in the form of tax cuts and other incentives. And this is too near the de facto situation for comfort.

So, a few goodies for long-suffering Canadian taxpayers, increased infrastructure spending and debt repayment could pretty much consume any spending room we might have in the next budget or two.

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  1. "In Ontario alone, government debt charges (interest) of $10.6-billion a year is now the third-largest line item in the budget, exceeded only by health care and education."

    Yet both services also fail miserably.

    "The New Democrats moan that corporations are not putting back into the economy the money they have received in past tax cuts."

    How can they, when they get handicapped around ever corner from all other levels of government; be it radical environMentalist tax schemes or opportunity killing minimum wage hikes.

    They can't expand or plan for it if the provinces lack the financial stability and at one point, spent $20 billion more than they took in, while throwing in new taxes when they said they wouldn't. And that was in the "good times".

    This hurts the other levels of government. So the federal government takes the incremental path of steady as she goes; while our largest province Ontario is making a mess worse than the NDP under Bob Rae, albeit in slower motion.
    This hurts projected federal revues. They need to be more aggressive to counter balance this.