Federal budget a triumph of tax madness

Posted on in Governance Policy Context

TheGlobeandMail.com – Globe Debate
Apr. 16 2015.   Jeffrey Simpson

The passing of time dulls memories, so perhaps it is forgivable to forget that when the Harper Conservatives took office almost a decade ago, they inherited a large surplus.

These self-described flinty-eyed custodians of the public purse, being in a minority parliamentary situation, used up the surplus in three years – or squandered it if you prefer that word.

They increased yearly federal spending well above the inflation rate. They cut taxes, especially the goods and services tax by one point, then another, at a cost to the treasury of a little more than $12-billion. They put some money into debt reduction.

When the severe financial recession hit in 2008-2009, the surplus was gone. Now, in the pre-election budget of April 21, 2015, the same government will brag about a balanced budget and propose that most gimmicky of gimmicks: balanced-budget legislation.

Some day, somehow, some government will repair the wreckage this government has done, and proposes to continue to do, to the Canadian tax system. Do not hold your breath, for the Conservatives have frightened the opposition parties into acquiescing on most of the bad policies because, bad as they might be economically, they are politically popular.

The government of our dreams will start by heeding the advice of economists and restore what is now the HST with offsetting lower income taxes, on the theory that those lower taxes encourage savings and investments whereas lower consumption taxes encourage spending.

Then that government will eliminate all the itsy-bitsy, targeted tax credits and breaks aimed at this or that political group. These distort tax policy and should be replaced with across-the-board reductions.

Then that government will stop spending billions and billions of dollars on what are falsely called for political reasons tax breaks for “hard-working Canadians.”

Take the Universal Child Care Benefit (a family allowance by a new name) and the Child Care Expense Deduction. These have just been hugely increased by the Harper government, such that the cost to the treasury will soar to $7.7-billion from $3.3-billion.

Who benefits? According to the Parliamentary Budget Office’s recent report, a staggering 51 per cent of benefits will go to “families with no child care expenses and families with older children.” Those with young children will have about 67 per cent of their child-care expenses covered, those with older children will benefit by eight times the amount they spend. Said the PBO, families not spending anything on child-care expenses “will receive the largest actual gain.”

This is tax madness disguised as populist politics. So is the proposal to allow income splitting which, as the PBO has demonstrated, will disproportionately benefit better-off families. Income-splitting is supposed to help “hard-working taxpayers,” the favourite cliché of the Harper populists, whereas it does nothing of the kind. Same for doubling Tax-Free Savings Accounts that will help the better-off. False populism again.

There is Conservative method to this madness imported from Republican ideology in the United States. There, and now in Canada, the idea is to shrink the state’s capacity to act by politically popular tax cuts and spending reductions.

The Conservatives have figured out that the opposition parties are too scared to oppose the vast majority of the tax cuts, with the exception of income splitting. In effect, the Conservatives have won the debate over the role of the state, because the other parties have more or less accepted that its shrunken size is appropriate. Any tax increases will be on business (as per the NDP) or business leaders, and all the wrong-headed tax reductions introduced by the Conservatives will remain. They have triumphed intellectually and, to this point, politically.

They continue to get away with saying one thing but doing another, as per the defence budget.

Having learned from the George W. Bush administration that it is best to fight a war and lower taxes, the Conservatives have entered the Islamic State fray while a) slashing the defence budget, b) allocating what will certainly be far more than the stated number of $562-million for the IS war, c) cutting taxes.

The main reason for balancing the federal budget is because defence is being slashed by $4.5-billion over two years. The result, says the PBO, is a defence budget that is “unsustainable at current force levels.” No matter. We will spend for a war from a budget that is not sustainable. How?

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