Social Policy in Ontario

In lead-up to federal election, all politics is fiscal

Posted on October 5, 2014 in Governance Debates

—

TheStar.com – Opinion/Commentary – As Canada heads into a general election next year, expect contortions from an opposition that can’t offer a vastly different agenda while adhering to the fiscal
Oct 04 2014.   By: Eugene Lang

A generation ago Thomas “Tip” O’Neill, Speaker of the U.S. House of Representatives and one of the giants of late 20th century American politics, coined the phrase “all politics is local.”
As Canada heads into a general election next year, a more appropriate axiom for this country might be — “all politics is fiscal.”

Next year, for the first time since the recession of 2008-09, the federal government will be in the black, to the tune of about $7 billion. That isn’t a big surplus by federal government standards — in the early 2000s, when both the economy and the government were much smaller, Ottawa posted a record $17-billion surplus. But the coming surplus will not be trivial either. And it will trigger a feeding frenzy of claims and demands on that money from all manner of federal government departments and agencies, interest groups, NGOs and provincial and municipal governments.

These are what the finance department refers to as spending “pressures.” For elected officials, the politics of managing spending pressures in a surplus environment can be acute.

In the late 1990s, when Ottawa was on the verge of a budget surplus for the first time in a quarter century, Prime Minister Jean Chrétien allegedly told his cabinet that if they thought the politics of managing deficits was tough, just wait until they got into the politics of allocating surpluses.

For their part, the Harper Conservatives seem to have both a fiscal and political strategy for managing the coming spending pressures. That strategy will be unveiled in the 2015 budget, and will consist primarily of tax cuts, which has been the hallmark of this government’s time in office.

These tax cuts could take the form of income splitting, which the Conservatives committed to do once the budget was balanced. Or they could be implemented through other instruments. But significant tax cuts are coming in one form or another; that is a certainty.

The impending tax cuts will not change the world for most Canadians, but they will certainly alter significantly the fiscal posture of the federal government by causing that budget surplus to mostly evaporate. And that in turn will reduce the spending pressures on the government.

These tax cuts will also have a big impact on the Liberals and NDP. That’s because the money — or “fiscal room” — that those parties need to make their election platform commitments add up will also have evaporated with the tax revenue. The Conservatives will have put the opposition in a fiscal box.

The NDP has a partial way out of this box. While NDP Leader Tom Mulcair is adamant that he will not raise personal taxes, he has said he will increase corporate taxes by a few percentage points. That will produce a fair bit of revenue for the NDP to fund their platform. But if Mulcair sticks to that line going into a campaign, he will face a hue and cry from the business community about the alleged job-killing effect of the NDP tax posture. It will be interesting to see if the Mulcair NDP, which is striving to convince Canadians they can be good stewards of the economy, will hold their corporate tax position in the face of those headwinds from the business community.

The Liberals, for their part, will find their policy latitude even more seriously constrained because they will rule out raising any taxes to fund their agenda. And in so doing they will be accepting the basic fiscal framework of the Conservatives, even though the federal government’s revenue take as a share of the economy is at its lowest ebb in half a century.

Over the coming year we can also expect to see both the Liberals and NDP adopt tactics to grow the fiscal room to pay for their commitments. One likely stratagem will take the form of commitments to “reallocate” government spending from low- to high-priority areas. This is one of the oldest tricks in the book that hardly ever yields significant revenue, especially in the short-run. The Martin government, for example, spent two years on an elaborate expenditure review exercise that yielded billions of dollars on paper but translated into very little reallocation.

What is almost certain is that we will be seeing these kinds of contortions from the opposition because they know that they cannot offer Canadians a vastly different agenda than the Conservatives while adhering to the fiscal structure the Harperites have put in place. That’s not so much politics as it is math.

Which is why, for the next year at least, all politics is fiscal.

Eugene Lang is BMO Visiting Fellow, Glendon School of Public and International Affairs, York University.

< http://www.thestar.com/opinion/commentary/2014/10/04/in_leadup_to_federal_election_all_politics_is_fiscal.html >

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

This entry was posted on Sunday, October 5th, 2014 at 12:03 pm and is filed under Governance Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.