Social Policy in Ontario

As he drafts his next budget, some advice for the Finance Minister

Posted on February 27, 2017 in Debates

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TheGlobeandMail.com – Opinion/Editorials
Feb. 24, 2017.   Globe Editorial

The date of this year’s federal budget hasn’t been announced, but it’s likely to land in the next couple of weeks. So, before Finance Minister Bill Morneau and his team present their second fiscal plan, some advice on what it should contain.

>The deficit and the debt: In the 2015 election, the Liberals broke the great deficit taboo, by promising to go into deficit – but only modestly, to the tune or no more than $10-billion, and for only three years. And then in budget 2016, they went much further, unveiling larger deficits, and no plan for a speedy return to balance.

Facing a slow-growth global economy, and given Canada’s low debt-to-GDP ratio, the Liberals’ 2015 election promise was sound. Their next step, planning even more deficit spending, and for longer, could prove to be economically wise. But it comes down to what Ottawa does with all those extra tens of billions in borrowed money. If it’s well spent, it makes sense. If it isn’t, it doesn’t.

Budget 2016 left most of those details blank. This year, Mr. Morneau has to start filling in the blanks.

That means offering a lot more clarity on how the dollars in the government’s signature platform item, its long-term infrastructure program, will be spent.

It also means having a coherent deficit and debt plan. The Liberal plan doesn’t have to be the same one the Conservatives might put forward. Mr. Morneau doesn’t have to promise to balance the budget by the end of his government’s first mandate, or even its second. From a purely fiscal perspective, there’s no reason the budget ever has to be perfectly balanced. The measure that matters is the relative debt level, measured by the debt-to-GDP ratio, and Canada’s is currently the lowest in the G7.

As long as deficits are small enough to keep the ratio stable or falling – that currently means annual shortfalls of about $20-billion or less – a small deficit is no more cause for crisis than a small surplus is cause for celebration.

Thanks to the arithmetic of economic growth, small deficits, year after year, are not necessarily a problem fiscally. If they’re well spent, they may even be a positive, economically. But if the Liberals are planning on continuing down the road of deficit taboo breaking, they’ve got to explain the hows and whys to Canadians.

That’s a political imperative, because many voters will not buy a story about government deficits, even limited ones, continuing on as far as the eye can see. And they shouldn’t, unless the government can show that what it’s pursuing is a coherent plan, and not just drift back into the habit of mortgaging the future, which overtook and Ottawa in the late 1980s and early 1990s, and nearly sank it.

> Seniors and the economy: Mr. Morneau’s economic advisory council a few weeks ago pointed out that one of the surest way of boosting long-term economic growth is to grow the workforce, by encouraging seniors and near-seniors to remain in it. That shouldn’t involve punishing people who retire at 65 or earlier. It should instead be about incentives, and simple rule changes, allowing the Baby Boom generation to continue to work, accumulate benefits and build up sheltered retirement savings for longer, if they want to.

That means, for example, giving seniors more flexibility about when they must convert their RRSP savings into an RRIF pension. Right now, you have to stop putting money in, and start taking it out, at age 71. Why not raise the maximum age? In fact, why have mandatory minimum withdrawals at all?

As for Old Age Security and the Canada Pension Plan, they already offer some flexibility for people who want to gain greater benefits by continuing to work, and deferring pensions beyond age 65. But OAS, for example, only allows you to defer until age 70. Why not give people the option to hold off longer?

> Ditch boutique tax breaks: The Conservative government loved targeted tax breaks. They were bad tax policy, but political catnip. The fear was that, once brought in, they could never be removed.

To Finance Minister Bill Morneau’s credit, he started rolling some back in his first budget. The Children’s Fitness Tax Credit was killed last year; the Children’s Arts Tax Credit is supposed to be gone this year. No, this does not mean that Mr. Morneau hates children, physical fitness or the arts. The most logical and efficient way to help parents make ends meet, and to support their kids, is with broad-based tax cuts, broad income supports for lower-income families, and broad economic growth. The Liberals took a small step in the direction of tax code sanity in 2016. They should keep going in 2017.

That tax break for people who buy a monthly public transit pass? Kill it, and give the money directly to public transit in Canada’s largest cities.

Or how about the tax credit for first-time home buyers? A tax break to encourage home-buying only pumps up the housing market, even as the Bank of Canada, the banking regulators and the Finance Minister himself are trying to cool it.

Start by eliminating those, and keep going.

>Infrastructure: The infrastucture program, with its economic-growth-sparking properties put forward as the main justification for the Liberal government’s plan for larger deficits, remains a mass of opacity. The budget has to shed more light on it.

How is the proposed infrastructure bank, designed to attract private investors, going to operate and what projects is it supporting? What infrastructure will be built entirely by taxpayers? How will each funded project contribute to higher Canadian productivity, and higher economic growth? More details, please.

http://www.theglobeandmail.com/opinion/editorials/globe-editoiral-as-he-drafts-his-next-budget-some-advice-for-the-finance-minister/article34132669/

Tags: budget, economy, housing, standard of living, tax

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