Forget principles, for the Conservatives it’s all politics, all the time [Budget]
NationalPost.com – Full Comment
February 11, 2014. Andrew Coyne
Here’s the story the Finance minister would like you to take away from this year’s budget. Because of the vital imperative of balancing the books by next year, he was obliged to tread lightly, with little room for grand initiatives. Accordingly, he has produced a cautious, even minimalist document, wholly devoted to curbing spending, keeping taxes low and protecting consumers.
As always with this government, this is at best half-true. The budget is already, to all intents and purposes, balanced: whether it comes in a couple of billion dollars above or below the red line, in a $2 trillion economy, is immaterial; whether it hits this target in any given year, let alone the particular choice of 2015, even more so. It matters only in the political sense that the government would like to be able to officially declare a surplus in an election year.
Likewise, a government that was of a mind to do big things, especially big conservative things, could find ample room within the existing spending and revenue envelopes: by closing the many useless and inefficient tax preferences, for example, it could cut marginal tax rates quite deeply — taxes are in no meaningful sense “low” — in the same way that ending handouts to business would free up billions of dollars to be put to more appopriate uses.
If Jim Flaherty has not done these things, it is not because he can’t, but because he won’t: in part, because he wants to save up a couple of big things, like income-splitting, for next year’s election budget, but more because he prefers to do a lot of little things — to sprinkle tax credits and subsidies on every micro-targeted demographic and focus-grouped gimmick he can find.
That’s the real story of the budget. It’s not a bad budget, overall, neither reckless in the whole nor overly harmful (with one or two exceptions) in the particular: but whether it does the right thing or the wrong thing it is always and everywhere because it serves the government’s political interests. As it always has been.
In 2009, for example, it served the government’s political interests to be reckless: hence that year’s massive and unwarranted plunge into deficit spending, which recent research has shown had little or no economic impact — other than to add $162-billion to the debt — but which had the admirable political effect of saving the government’s bacon.
Since then it has suited the government to adopt a more restrained approach. Very well: it is results that count, not the motive, and the results, as this budget confirms, are gratifying. By next year, program spending will have been reduced by nearly 14%, after inflation and population, from its 2010 peak. That’s not saying a great deal — it will still be higher than in any year before then. But it is back within hailing distance of its pre-recession levels, and for that let us give thanks.
The minister likes to stress that this was achieved without cutting transfers to persons or provinces, but this again is an entirely artificial, ie political, constraint. There is much room to reform old age security and employment insurance, far beyond the timid changes the government has introduced. There is no good policy reason why the federal government continues to transfer $60-billion in cash, unconditionally, to the provinces every year. It’s just politics.
On the other hand, this unwillingness to rock the boat — the $37 billion in miscellaneous transfer payments to corporations, trade associations and sundry other interests is similarly untouched — has forced the government to adopt an uncharacteristically bold stance towards its own employees. The single biggest item in the budget is the $1.2-billion in savings pencilled in from reforms to overly generous public sector health and pension benefits, notably the notorious bankable sick days. (I say pencilled in: these have still to be negotiated.)
After that, the pickings get mighty slim. On the plus side, the government’s approach to labour markets is appropriately micro: though opposition parties will be urging, as ever, Keynesian-style “stimulus” in the form of higher spending, with job vacancies already above 4% and shortages emerging for certain skills and sectors, it’s clear that what is needed is measures to increase labour supply, not aggregate demand. The new support systems for apprentices and internships, beyond conventional student loans, are a welcome addition, with the abolition of the ill-judged Immigrant Investor Program an equally welcome subtraction.
On the negative side, there is the usual grab bag of boutique tax credits (now playing: the Search and Rescue Volunteer Tax Credit), handouts to industry (another $500 million for the auto industry, as if it had not been coddled enough already, plus that awful plan to use defencement procurement as an industrial “strategy”), and pandering to (not protecting) consumers. Most of these are fairly harmless — the “Made in Canada” branding campaign, for example — until you come to that bit about Legislating Against Unjustified Cross-Border Price Discrimination.
Words cannot quite convey how idiotic a proposal this is: at best a non-solution to a non-problem, at worst a costly bureaucratic nightmare. There are thousands upon thousands of products sold on both sides of the border; their prices may be determined by for all sorts of factors, but what is certain is that the relative prices of goods in each country are entirely hostage to the exchange rate. So: suppose, at a given level of the dollar, the price of a widget is higher in Canada than it is in the U.S., and suppose the government orders it rolled back to parity. The next day, the dollar rises, and the price in Canada is higher again. Will the government have to issue another price decree?
That only begins to describe why this is madness. But it shows just how far removed from any principled moorings this government has become. As ever, it’s all politics, all the time.
Budget at a glance:
Jim Flaherty lowered his outlook for this year’s deficit to $16.6-billion from the $17.9-billion estimate in his November fiscal update. For 2014-15, the shortfall forecast has been lowered to $2.9-billion from $5.5-billion. At the same time, the minister has raised his surplus target for 2015-16 to $6.4-billion from $3.7-billion. In the coming years, that surplus is projected to grow steadily before reaching $10.3-billion in2018-19, the government’s current forecast horizon. “It’s been a long road back from the Great Recession to a balanced budget,” he said.
What you need to know from the budget:
1. The cost of cigarettes is going up. A carton of 200 cigarettes will now carry about $21 in taxes, up from $17. The 24 per cent increase will apply to other tobacco products effective immediately. Oh, and duty free cigarette rates are going up as well.
2. The government plans to cap domestic wireless roaming rates, arguing it will “lower prices” and encourage competition. That won’t help you, though, if you go roaming in Mexico.
3. The government says it intends to legislate an end to the price gap betweengoods sold in the United States, for instance, and the same goods sold for more in Canada. How will the Conservatives do this? “Details will be announced in the coming months,” the budget says.
4. The government builds in a $3 billion cushion into its budget. If all the numbers line up as the government hopes, it could mean that the budget is balanced, even though the government said the budget wouldn’t be balanced until next year.
5. Overall, the federal budget this year is a very cautious document that doesn’t include many frills, but does have spending slotted on an as-needed basis — not as much cash up front. That leaves the government free for a more robust document next year to set up the fall 2015 election.
6. A $543-million fix for Montreal’s crumbling bridge infrastructure, including $165-million over two years for a new bridge to replace the aging Champlain Bridge.
7. Suspended senators and MPs could soon find themselves cut off not only from their salaries, but also from getting closer to their pensions. The federal government signalled its intent to close a loophole that allows suspended parliamentarians to continue to accrue years of service towards their pensions. That currently applies to three senators suspended without pay: Mike Duffy, Patrick Brazeau and Pamela Wallin.
What you may want to know from the budget:
1. The Governor-General is paying more taxes: The only person in the country exempted from customs tariffs will lose that privilege. Last year, the government decided it was time the Governor-General also paid income taxes, and a pay raise to offset the loss in income.
2. Olympic athletes will be able to count the money they earn from amateur competitions when they look to calculate how much they can contribute to their RRSP. Bottom line: Olympians will be able to set aside more for retirement — unless all those gold medals may be worth a bit in the future.
3. Once approved, the government will have to provide an annual update on how various tax-saving measures are actually performing so you know if you’re really getting more money in your pocket.
4. Beer drinkers rejoice! The government has proposed new regulations to remove red tape hurdles on labeling for new beers. That will help some brews get to market faster — but not bring down the price of your favourite ale or lager. It also is looking to make it legal to bring beer and liquor across provincialborders, in the same way wine can be.
5. Search and rescue volunteers are being offered a tax credit for their work. The credit will be available to anyone with at least 200 hours of service.
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