Yes, it's that time of the year again. The government is conducting pre-budget consultations on the Department of Finance website. There are just 5 questions this time (and that includes the "other comments" question,) but the word limit has been extended to 200 words - instead of 50. So let's take advantage of this opportunity and demand fiscal sanity - in 200 words or less.
The first two questions are about the fiscal stimulus - how beneficial it was and what could be done to make its measures more effective. Here - each one has his own experience; for me - I couldn't even benefit from the $1350 home renovation tax credit (although my landlord sure did). The only thing that benefited me directly was a ~2.2% increase in personal exemption - from $10100 to $10320. If they want my opinion on how to improve the effectiveness of this measure: sure, just increase the personal exemption further - to $11,000 at the least, so that people could save a little more than $33 a year.
Then come the two questions on the directions, that we'd like the government to take once the recovery is achieved: How could the government improve the competitiveness of the Canadian economy (so that Canada continues to attract investment and to create jobs) and when should the government get rid of the deficit? Well, the answers are simple: competitiveness is achieved through low taxes and taxes can only be lowered if the government brings program spending under control and balances the budget as soon as possible to make room for broad-based tax cuts.
Here are some numbers to consider: Back in 1999/2000, program spending stood at $118B. When Stephen Harper came to power, it was already at $175B. Increasing steadily by 5-7% during each of the three years preceding the recession, program spending reached ~$208B in 2008/09 and was expected to reach $216-218B in 2009/10. Instead, thanks to the stimulus spending, it has ballooned to over $240B. Had the program spending increase been capped at inflation+population growth, the "base" program spending for 2010/11 would have been "only" $163B. And even with the emergency / stimulus spending on top of that amount, overall program spending (in this imaginary world of fiscal sanity) wouldn't have exceeded $190B. Instead, the government is preparing to spend $245B in the coming fiscal year and slightly less than that - in 2011/12.
So what should we demand? Spending control and balanced budgets. Zero-based budgeting should be phased in, first - in non-essential departments, then it should become the rule everywhere. Budgetary balance must be restored by the end of 2011/12. A strict spending cap must be introduced for at least 6-8 years to let the population growth and inflation catch up with the inflated amount of program expenses. During those years, any surplus revenues (if any) should be evenly divided between debt repayment and broad-based tax cuts for families and small businesses.
4 comments:
So what would you cut?
http://www.progressive-economics.ca/2010/01/16/what-could-conservatives-cut/
Me, I remember saving roughly squat from the 2% GST cut. I'd say put it back up. GST isn't applied to international exports, and we're more an export-driven trading nation because our domestic consumption is a lot less than others, and that's not likely to change quickly.
I think the way to stay competitive internationally is to pay for our domestic spending from domestic taxes. Works for the German automakers, I think.
Contrast that against bundling the cost of U.S. auto workers healthcare into the price of their cars. It hasn't worked out so well for them.
The only thing on which I could agree with you is the 2% GST cut - it wasn't a good idea. There could have been a better way to cut taxes; the same funds could have been used to slash 1-2 percentage points off personal income tax (on top of what Paul Martin had promised,) and there would be enough money left to allow income-splitting, eliminating the tax penalty for single-income families.
But the GST cut is already there and I wouldn't want to see it reversed unless there's a major income tax cut (like the one described above or better) offered as a trade-off.
To the major question now. When it comes to spending cuts - I'd let the zero-based budgeting do most of the job. Each department should be compelled to justify all of its expenses, instead of demanding the last year's amount (adjusted to inflation and population growth) as a "base" with some extra amount on top. That will allow to eliminate wasteful spending such as:
* Expenses that were originally designated as temporary or as emergency measures - that should have lapsed years ago.
* "Year-end" expenses - when the department tries to spend as much as possible before the end of the fiscal year to demonstrate the "need" for more funding.
* Ideologically-driven spending - I'm talking about grants to NGOs and similar organizations that are more lobby groups than charities. Same with all the groups that receive foreign aid funding, but are not directly involved in disaster relief operations.
With the zero-base principle applied not just to the operating expenses, but also - to targeted transfers / direct program expenses, we can expect to slash at least $10B off the deficit. Imposing stricter cap on transfers to provinces (the promise was merely not to reduce them,) will make it easier to balance the budget if not in 2011/12, then in the following year. (Still, compared to $27B deficit projection for 2011/12, a $10B deficit won't be that bad.)
>>I think the way to stay
>>competitive internationally is
>>to pay for our domestic spending
>>from domestic taxes. Works for
>>the German automakers, I think.
You think, German autoworkers don't have their taxes (which include healthcare costs and which are higher in Europe than in the US) bundled into the price of their cars?
Theoretically, if both systems were equally efficient, then the costs would be the same in both cases. Except that German automakers would be paying one large bill (the taxes) and the US automakers would be paying two smaller bills (taxes and health insurance).
In order for the "one large tax bill" system to be more beneficial for the US automakers, one of the following needs to happen: Either the public system needs to operate more efficiently than the private one (which rarely happens, especially in healthcare) or - someone else would have to be forced to pay the difference.
The latter is the most likely outcome. The automakers, claiming big losses on their tax returns, would be getting tax breaks (effectively lowering their share of the healthcare costs,) while other businesses (those that actually report profit) - would be slapped with higher tax bill that would include disproportionally higher healthcare costs.
>>Contrast that against bundling the
>>cost of U.S. auto workers healthcare
>>into the price of their cars. It
>>hasn't worked out so well for them.
Actually, the US auto workers have bundled a lot more than just the healthcare costs into the price of their cars. When a broom pusher makes more money than an average programmer - it's extremely unlikely for an enterprise to stay competitive.
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