The federal government brings down its budget on Thursday. From what I can gather from various media stories, the word is that it'll be pretty thin. The two-year stimulus package announced last year will continue as planned, and no new tax measures are expected.
This thread asks the question: what would you like to see on Thursday? I'm fine with the idea of letting the stimulus package continue as planned, and with no immediate tax increases. The recovery is under way, but we're not back to pre-recession levels of economic activity.
But we should see something in the way of a plan to eliminate the structural deficit. My preference would be something along the lines of an announcement to increase the GST to 6% as of January 1, 2011 and back to 7% on January 1, 2012 – but I'm not holding my breath.
So what measures do you think should be in the budget?
Worthwhile Canadian Initiative 
What I would change: (not holding my breath, either)
In Canada, tax credits for charitable giving are lower for small donations than for big donations: a gift of $200 or less will attract a 17% tax credit, higher value gifts attract a 29% credit. I submit that this has regressive implications; the tax credit should be a flat percentage of the value of the donation.
Additional income tax brackets at the 500K, 1M and 2M marks. The wealthy don’t contribute much of anything to the recovery (or to the economic wellbeing of the the average Canadian generally) so the government might as well put some of their unused wealth to a productive use.
We’re still in dire need of long term (non-stimulus) infrastructure spending for our road, rail and communications networks.
I’m with you Stephen, both on the ‘should’ and on the ‘wont’
I think there’s something wrong with the fiscal stimulus continuing as planned (for another year?), and yet the Bank of Canada starting to raise interest rates (in July?). I would rather see an end to the fiscal stimulus, and a continuation of monetary stimulus, than vice versa.
“My preference would be something along the lines of an announcement to increase the GST to 6% as of January 1, 2011 and back to 7% on January 1, 2012 – but I’m not holding my breath.”
I’d rather see the litany of exemptions thrown out of the GST (which would also raise revenues), but this is even less likely to happen.
“My preference would be something along the lines of an announcement to increase the GST to 6% as of January 1, 2011 and back to 7% on January 1, 2012”
Stephen, if you run in my riding, I’ll vote for you.
The problem is selling it. We need to do something to put the urgency of fixing the cyclical deficit in perspective. Say, if we act now, a 2 ppt rise in the GST would be enough to keep the government fiscally sustainable through 2070. If we wait until 2015, it might be 3 ppt. And if we wait until 2020, it may be 4 ppt. Really instill the idea that delayed action is delayed, but increased, pain in the future. Like ripping off a bandage.
I’d like to see Flaherty cut all Wasteful Spending. At least that’s what the National Post tells me is the key to balancing the budget. For the life of me I don’t know why Flaherty just doesn’t eliminate that whole Ministry of Wasteful Spending, it just doesn’t do much for Canada.
Curmudgeon, do you think rich people swim in their money like Scrooge McDuck? They invest it, creating jobs.
I second Nick and would like to see the stimulus ended and a focus on monetary issues. I would like the budget to either cut “normal” spending (which the not-so-conservative government has been increasing above inflation their whole time in office) or increase the GST back to 7% (preferably both so we can start paying off debt quickly again). Modest income/corporate tax cuts would be nice, but only if there is a surplus above $15 billion after spending cuts.
Investment in educating younger people about Canada’s history. The majority of younger people believe Sydney Crosby’s O/T goal on Sunday was a greater moment than Paul Henderson’s 1972 eighth game, 34 seconds remaining, series winner against the Soviets (btw Crosby’s winning gloves and stick fit not too badly).
On Nick’s point about ending fiscal stimulus: I don’t mind it continuing IF they’re doing stuff we need to do anyway. Unemployment is relatively high and money is cheap, so now is as good time as any to catch-up on infrastructure work.
Patrick, the one problem is that building most infrastructure is the responsibility of the provinces. Federal funding for those things is ad-hoc, usually sparked by political opportunism at the federal level.
Christopher: let the provinces decide what projects and manage the tendering/construction process, but use this as a channel for funding from the feds. I think the two levels of government could come to an agreement on this.
The only issue I’d see is that differing levels of spending might be appropriate in each area of the country in terms of need for stimulus. Do we try to spend in the regions that are lagging the average, or do we add fuel to the fire in regions operating at capacity because the rest of the country is not?
Andrew, 2070?, recessions + different policies + dollar and euro crisis + demographic changes = time to stop using projections for 60 years from now when current economists can barely predict 3 years from now. Don’t forget that Canada’s mission in Afghanistan is ending in 2011 and thus will mean a large reduction in military spending, therefore, no structural deficit, which means there is no need to increase the GST.
Mike, I couldn’t agree more, eliminating the GST rebates and exemptions would be great. I think tax reform should also come, flat tax.
Mark, wasteful spending will be cut as Stockwell Day has become the head of the treasury board, he will most likely sell off crown land and a few crown corporations. Politically I think there may be a case for taking on CUPE so that might be up his sleeve when it comes to public pensions and wages, but that’s a maybe.
Chris and Nick, there have actually been some cracks in the Tory caucus over monetary policy, some have been pushing Harper to advocate his Hayekian views on monetary policy and start a debate on inflation and central banking, and some have called(Flaherty) for minding their business and have the BoC keep interest rates lower for a longer period. Flaherty would love lower interest rates for political reason, naturally. When it comes to monetary policy I see the case for pushing the Loonie down to try to match the US’s drop, however, philosophically/morally, do we want to follow the US down with their reckless policies, and if so, for how long?
The federal budget should cut spending and set a plan to begin deficit reduction. A reduction in red tape in all sectors of the economy should be a big target for the government to set-out. The budget should include in it a bill to scrap the Canada Investment Act. A flat tax would be excellent on personal and business income. Start eliminating many tax credits and simply offer all Canadians tax reductions, no matter what their level or situation. Scrap the Canada Student Loan Service and Grants, encourage public institutions to compete with private institutions and force labour unions to reduce their salary, even encourage institutions to get rid’ of labour unions and focus on teachers and performance for other employees. An evaluation of military spending and how it will be reduced over the next few years as we pull out of Afghanistan, in 2011. Eliminate provincial transfers for health care and other services, while cutting taxes equally so the provinces can make it up in taxes(I’m a New Brunswicker who hates equalization payments with a passion, it creates unemployment, over-taxation, and encourages the inefficient public-sector increases). My wishlist is probably too optimistic, I guess most of our views won’t get noticed in the budget.
Patrick, infrastructure can be taken care of if we privatize public infrastructure. Private infrastructure would also reduce the danger and mismanaged approach we currently have.
Andrew, create new projects that won’t be used? Just spend for the sake to keep people working? I think EI would be better than just going on infrastructure crazy spending. It also costs a lot in bureaucratic needs to transfer moneys between the fed and provinces for infrastructure, and the problem is that it could be used for other things such as cutting taxes in Quebec or fighting the deficit, instead of infrastructure. The feds have no legal right to transfer money to the provinces and tell them what to do with it, the only thing they can do is come in as a partner and sign a contract. Just like equalization payments don’t have a tag from the feds on what to do, such as engaging in austerity programs and cutting red tape and bureaucracy.
Mike: Depends on the exemption/rebate. Ending rebates for low income households would be a terrible idea.
Chris: So? If it’s a good time, it’s a good time. If anything, I think the problem tends to be pro-cyclical overspending, not counter-cyclical overspending. AB is the master of that (e.g. helicopter money in the middle of boom!). I call it the hairshirt fallacy; in good times we take off the hairshirt and spend like drunken sailors because God is obviously rewarding us for our moral and righteous living. In bad time we have to put on the hairshirt, self flagellate, and repent because we’re obviously being punished for our sinful ways. It’s the economy as morality play.
1 – Revenue-neutral merger of the two lowest tax brackets (at the higher rate) and increase in the basic personal exemption;
2 – Establishment of a separate Canada Health Fund premium line item at a fixed percent of pay (similar to the EI premium) so that the actual costs are visible to taxpayers. Most of the premium would be returned to low-income earners and the general rate drop accordingly; it would just be a revenue-neutral exercise in transparency.
3 – Return of the expenditure review committee;
4 – A commitment to contain government expense growth to inflation plus population growth, indefinitely. New programs would be financed only out of money identified through expenditure review;
5 – An end to government payments to NGOs, and a public-awareness campaign on the importance of charitable giving.
Justin,
About 99% of what you said won’t happen in a Minority parliament. Also, privatizations of what most people consider public assets tends to be unpopular overall, as much as I’d like to see more of it. Privatizing airlines, railways, and oil companies is one thing, but with a few exceptions most of what’s on Ottawa’s books now probably won’t (Canada Post, Via rail for example). Even if they were in a majority position, the conservatives will want to be re-elected one day.
Interfering with the loonie would be a bad idea. We should let it be. We’ve been doing quite well in our recovery despite it’s higher value. We’re now investing in higher productivity. Devaluing the loonie is akin to corporate welfare at the expense of living standards and you of all people should be against it.
force labour unions to reduce their salary, even encourage institutions to get rid’ of labour unions
So what you’re saying here is the government should intervene in the economy and labour market? Most labour unions are a product of the market. They should have no special benefits and employers should be allowed to replace workers at will, but the government should not specifically attack them. Besides, labour law is a provincial jurisdiction unless they’re federal employees or the government organization cross provincial lines (ie OC Transpo).
Patrick: But the point is that they do that regardless of the cycle. In theory I’m not against what you’re saying*, but spending a lot in good times and then even more in bad times is not a good idea. We have to look at what actually happens in practice.
*Who am I kidding, I think spending should be reduced either way! 😉
Yes, announcing a schedule of future GST value-added sales tax hikes would be an excellent idea. We might even forgive Stephen Harper for acting like a wild-eyed get-rich-quick populist.
However, if more “stimulus” money is already committed, then withdrawing those programs at this point would be unusual to say the least.
Nick: I would guess that a schedule of GST increases would overwhelm any sloppy, poorly-timed stimulus from discrete programs still being implemented.
I would vote for a large overhaul of the system (also not holding my breath). A few of the basic points.
1. Increase in consumption taxes. Decrease in income taxes. I think the rationale for that has been rather well documented.
2. Allowing income splitting at the family level. With all the talk over the year of low birth rates, struggles to meet immigration quotas and the problems related thereto, I don’t understand why we have never used the tax system to incent higher birth rates.
3. An overall reduction in the taxation at the federal level and an increase at the provincial/municipal level. Obviously this is beyond the limited scope of one federal budget, but I would rater see a system of taxation that more closely matches the public service delivery model.
Your suggestion would be an admission of defeat by Harper. You will not see it.
Here is a plan that would bring in the equivalent of .75% increase in in tax revenue.
http://marshallplan.ca/marshall_plan.html
Instead of using the stimulus money to go towards economic stimulus, which apparently we don’t necessarily need, why not invest it in this country’s education system? Our schools and the system in general have been falling in to disrepair for years, leaving our children less prepared to make the leap from high school to university or the workforce. Much of what’s spent would count as economic stimulus via construction, training and other costs, and we could look at the creation of a well-educated, scientifically and technologically adept graduating class in a generation’s time as the outcome of a long-term investment. And if we could work in an increase in the GST back to historic levels I wouldn’t raise a fuss over it.
1) Commitment to undertake a full program review to identify and eliminate spending, programs and FTEs that add little value, do not
achieve concrete outcomes, and/or duplicate provincial efforts.
2) Reduce the benefit of federal public service pensions
3) Scrap the idea for a new economic development agency for southern ontario.
4) Commitment to phase out supply management in the Canadian dairy industry.
5) Commitment to reduce foreign ownership restrictions in telecom.
6) Raise GST 2 points.
7) Continue with corporate income tax reductions and phasing out of taxes on capital
…..that would be a good start
Mickey – Readjusting things so that provinces have more resources is a good idea. More programming and policy decisions would be made closer to the people that they affect. I have worked in gov’t at both the federal and provincial levels and I can’t tell you how many times I have seen the feds make dumb decisions because they just don’t understand that what works in Manitoba may not work in Bc, etc. Trying to run this far flung country from Ottawa just doesn’t work.
Justin – I’m a Nova Scotian, now living out West. Equalization payments are problematic – agreed. But what do we do? We can’t just take them away.
Dan, more money doesn’t equal to better education, the problem with our secondary school system is the teachers, proceeding with less report cards puts less preassure on the teachers. The problem is that teachers get protected and have a bunch of legislation that makes it easier to pass students then fail them for what they did not succeed at. Also, the principal needs to start getting more involved in the school and disciplining students, they promote from in the ranks in most schools which leaves the ‘friendly’ teachers to become principals. John Stossel actually made an interesting report on privatizing schools, it’s somewheres on google video, it deals with many of the same issues that we suffer in Canada.
Matthew, Equalization payments should be taken away, what you would see would be a drastic plan in government to tackle wasteful spending and privatize and deregulate most markets. For example, in NS, they would stop giving a hand out to the privately-owned monopoly on electricity and let the market take care of it. Equalization payments have become nothing more than an entitlement. Without starting to have them deal with the reality that they have an aging population and a terrible environment for investment, they will never deal with the problem and just wait until the rest of Canada becomes poorer provinces. Do you see Quebec getting any better? They still have a huge deficit and no will to change it, they still think that they send out more money of the province and don’t get it back.
I’m hoping to see some of the money in the budget go to expanding the number of nurses in this country. What is often not addressed (or is easily overlooked) is that many treatment programs put patients on hold for months on the waiting list simply because they do not have the people to meet the demands. Having seen it at work first hand for many years, I would sincerely like for Canada to truly boast at having the world’s top health care system.
While investing in digital technology and research is noble (also pretty much copied from Obama’s Address), we can’t forget that we have an aging population that will soon go into retirement. If we’re talking incentives and tax breaks, how about offering retraining for jobs in the Health sector? That is one field of employment that will never become obsolete.
Justin: equalization payments go into a province’s consolidated revenue fund, so its difficult to determine what exactly the money is being spent on, but equalization represents over 17% of Nova Scotia’s budget, so while, yes, probably some of that money is spent on what could be characterized as wasteful discretionary spending, probably a lot of it is also spent on teachers salaries, MRI machines and university libraries. I don’t think you can just take all that away when you can’t immediately replace it with something – I don’t think its that simple.
Matthew, I think the problem is that Justin sees (publicly provided) teachers, university libraries and MRI machines as wasteful spending. I’ve sort of concluded that I can’t have a meaningful discussion with someone who does not accept that there are public goods.
Just one comment, Mickey, there are all sorts of incentives in the tax code related to families. Not sure what you mean that the tax code hasn’t been used to incent families.
There is of course the 100 $ / month, but there are other programs like the Child Tax benefit, etc, a lot of credits. Now those may not be the way you would like to see it used but still.
One comment about Justin’s desire to remove equalization payments. It’s in the constitution, and we all know how hard that is to change!
JH, agreed, we all know how much people want to change the constitution, ha-ha.
Matthew, if the money is removed immediately, the province would start setting a strategy, equalization has been around for what now, 28 years or so? I haven’t seen much progress from Quebec or NB, or other provinces on equalization payments. Quebec’s debt is still pretty high, and I wouldn’t be surprised if it increases. NB has recently started deficit spending, and they’re talking about more bureaucracy and anti-competitive laws for the province, which in terms will simply create more unemployment and send the youth away. I haven’t looked into NS in a while, so I won’t bother commenting. Either you slowly pull them off and create a political nightmare, or you just cut it and tell them to deal with it, it worked for transfer payments under Martin.
Andrew, there are a lot of critiques about public goods, education has been argued against by many economists and philosophers, Murray N. Rothbard wrote a compelling argument against it, as did Benjamin Marks. Personally, I see it as a waste because it goes down hill due to lack of control over it from either no input from parents, or the lack of instilling responsibility and interest in students. University libraries are often a waste because they don’t coordinate the availability of books in a region, and their age, the market would do that. MRI machines are not wasteful spending, but having government only buy them when it’s convenient is putting all Canadians into the same pot, instead of letting those who value their health more, to simply pay more and get better quality. Let’s just agree to disagree, because otherwise it will turn into a public goods debate which I don’t really want to start, and fill up the “federal budget” post with, which in turn will annoy Nick and Stephen.
However since the budget just came out, I’m somewhat saddened with how little it actually sets out, I like the lax on environmental regulations and removal of red tape in other areas, followed by the freezing I’ve been saying they would bring in. But other than that, does anyone find it that productive? Although, there will be further spending cuts to come at the treasury board with Stockwell Day.