Opportunity lost
What shall it be? “Triumphant”, “generous”, “fair”, “intelligent”, “wise”? That the fall mini-budget is, in fact, none of these may only concern the wretched drudges of the mainstream media who were given a mere 30 minutes – rather than the customary four hours – to analyze the document in lockup before having to rush their hastily crafted stories to surly assignment editors.
None of which actually matters to a leadership that has mastered, better than any other in recent memory, the fine art of self-aggrandizing spin – to a government that clearly believes a critical and informed press is utterly irrelevant to a free and open democracy. But, I digress.
The real problem with this $60-billion Halloween treat is not in its guiding principles. (Nearly every economist in Canada understands the merit of reducing annual taxes for businesses, corporations and individuals). Where it fails is in its execution. In short, it doesn’t go far enough redressing the imbalances that continue to threaten the nation’s long-term productivity and prosperity.
Its most preposterous measure is the $34-billion promise to cut the Goods and Services Tax over the next six years, a move almost no expert in Canada believes will yield significant economic advantages to anybody, including the big businesses and large consumers to which it ostensibly appeals.
Rob Carrick, writing in the Globe and Mail Tuesday, was correct when he said: “Cutting the GST is a hit-and-miss way to lower taxes because it’s of benefit only to people buying things, and the larger the expenditure, the better. If you want to save or invest your money, a GST cut does nothing for you.”
Moreover, said Dale Orr, chief economist of Global Insight: “The relationship between GST revenues and consumer expenditures reveals no significant evidence of stimulated consumer spending.”
And, according to Sandy Cardy, vice-president of tax and estate planning for Mackenzie Financial: “My preference would have been to see a broader income tax cut because I think it would have been better for the economy.”
You and me both. The sensible approach would have been to lower annual levies on personal and business income far more aggressively than the combined $25.4 billion worth of cuts announced, to be phased in over the remainder of the decade.
By focussing on income, rather than consumption, taxes, federal governments around the world encourage higher rates of savings precisely because these generate a greater volume of investment in the key productivity tools all industrialized countries need to remain globally competitive: education, training, R&D, and commercially viable innovations. And they do this when national output is comparatively robust (as it is in Canada today), not after it retracts, as it inevitably does.
Still, most troubling about the economic update is its thorough lack of perspective about the value of prudent, targeted, public spending. Desperately afraid of annoying its purported base of right-wing voters, this government routinely characterizes coordinated works programs as either necessary evils, or egregious compromises to leftist ideology. Or, as Flaherty told reporters after his turn at the podium this week: “The cupboard isn’t bare; we’re still in a surplus. But I don’t expect any lavish spending programs.”
The question, of course, is whether it’s “lavish” to rebuild essential municipal infrastructure; or “lavish” to help poor provinces become meaningful economic contributors to Confederation; or “lavish” to reduce poverty and homelessness; or “lavish” to protect our environment; or “lavish” to improve our public schools and health care facilities.
Who cares? Outside of a few scruffy members of the press, maybe no one. The federal government wants you to enjoy your one percentage point drop in the GST. It wants you to remember that it has fulfilled its pre-election promise, and that a promise – no matter how bone-headed – is a promise, after all.
So, be happy. And don’t think, even for a second, that the most appropriate moniker for this economic update is the decidedly mirthless, “opportunity lost”.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 1st, 2007 at 12:46 pm
The GST cut doesn’t necessarily benefit an individual or family buying small ticket items. But it does help put more money back into the economy. For instance, on average, 1.5 million million new cars are sold in Canada each year. So for fun, let’s say the average price of a vehicle is 17,000 (low ball figure). With the additional one percentage point cut on the GST, that would mean 2.6 billion would be put back into taxpayers hands for vehicles only. Methinks Canadians may opt to spend or invest some of that extra cash. That’s a win-win considering Canadians don’t really trust politicians to do the right thing with their money.
November 1st, 2007 at 3:56 pm
Are you saying that 1.5 billion cars are sold in Canada each year (“1.5 million million”)? I think you mean 1,630,316 new cars and trucks were sold in 2005 (according to StatsCan). Anyway, I take your point. But my point remains that the difference between a 6 and 5 per cent GST on a $17,000 is $200. The difference on a $50,000 purchase is $500. Don”t get me wrong. I like tax cuts. I just don’t think cutting consumption taxes is the best way to encourage savings and investments. On the other hand cutting broad-based income taxes (personal, small business, and even corporate) produces a far bigger cumulative bang for your. . .uh. . .buck.