March 2010 Budget Continues Toward Deficit Crisis
Last year I proposed that the Conservatives’ budgeting method was designed to intentionally create a funding shortfall. After hearing about the budget announced today, I see more evidence for the likelihood of my suggestion being true.
In January the Parliamentary Budget Officer (PBO), Kevin Page, explained that the deficit had become structural, meaning it’ll keep existing when our economy is back up to snuff (if it gets there). I’ll have more to say about the budget another time, but consider an element in what happened today, the decrease of corporate income taxes.
The Globe and Mail’s John Ibbitson explained1 (4 March 2010) that Harper is determined to eliminate the deficit by 2015. Of course, we know that Jim Flaherty presents this as happening largely through an upbeat economy, one that grows so well he doesn’t have to raise taxes and simply must prevent spending increases. But this message has been somewhat confusing. Flaherty used to talk about not allowing spending to grow. Later the Conservatives appointed Stockwell Day as the man to make cuts. Their messaging seems to vacillate between limiting spending growth and making cuts. They certainly aren’t going to raise any taxes.
The CBC reported3 (4 March 2010) on Flaherty’s perspective
“The government’s plan to get ahead of its $54 billion deficit is built largely on the back of $17.6 billion worth of savings over the next five years that will come from streamlining and reducing the operating and administrative costs of government departments. That plus a broadening tax base as the economy improves will be enough to bridge the gap, Flaherty said.”
Ibbitson reminds us early, what the PBO reported: the deficit is structural and regardless of Flaherty’s optimism, it’s very unlikely to go away as Flaherty says.
Now, switching topics a bit, Ibbitson writes
“With costs rising by 2.5 per cent a year, after accounting for inflation and population growth, health care is consuming nearly half of the budget in some provinces, even as the baby boom heads into retirement. Canadians need to confront the truth that the health-care system as it exists simply can’t be sustained.
“The federal government will be under intense pressure from the provinces, who will not be able to make ends meet because of the explosion in health care spending,” warns Pierre Fortin, an economist who teaches at the Université du Québec à Montréal. “The provinces will always be at the door, asking for more money.”"
I think this is significant commentary. Take stock, a structural deficit is established, and now the Conservatives are on track to further decrease the amount of money the government takes in by reducing corporate taxes even more than they already have. According to page 67 of the budget2 (and mentioned throughout)
“The federal general corporate income tax rate was reduced to 18 per cent on January 1, 2010. It will be further reduced to 16.5 per cent on January 1, 2011 and to 15 per cent on January 1, 2012.”
That means Canada will have the lowest corporate income tax rate in the G7. The hope is that that will attract more investment. But at what cost?
Losing the federal surplus meant we lost our safety buffer. If something unexpectedly worse occurs than this recession, which we seem to be leaving, we’re in trouble. But that’s a big if. The heart of the worry here is that faced with the inevitable stresses of both the health of an aging population and the fact that there will be fewer people generating revenue for the government, now the government is giving itself further stressors by decreasing another source of revenue, corporate income taxes. Even in good times, that means there’s less the government can do to promote Canadian well-being.
So why do this? Are the Conservatives making a big gamble that the economy is going to improve so much, our worries of greater problems will not come to pass? Or are they being irrational? I don’t think they’re gambling or being irrational. They’ve calculated exactly what’s needed to bring about a widespread crisis in the government’s ability to fund the programs we expect. The Conservatives need to bring about a crisis in order to implement their vision.
A crisis makes arguments for drastic change seem required, people react. And after gradually being lulled into a low-tax stasis without much effort, it will be easy for Conservatives to make the degraded services around us seem unworthy of funding. It’s much harder to rebuild something anew than to maintain and improve upon what is working well. I can just hear the arguments “look at the state of health care, our equipment is useless, we don’t have the staff, etc. clearly the public option doesn’t work!” of course forgetting that it can work quite well when funded and operated properly. People will just see it in crisis state.
A government lacking the funds to do much, is one that cannot ensure health care and social services to its people. Indeed, when our health care system is so far extended beyond capacity, watch, the Conservatives will argue that the only solution is to bring in the private sector. And health care is only one example, there are many other government services that will suffer similar fates probably even sooner.
(P.S. I remember a time not long ago, when one of the arguments for doing business in Canada was our health system. The argument went something like, without companies having to foot the cost of health insurance, like they do to some degree in the US, an expense is saved along with a lot of bureaucratic work that doesn’t have to be done. Cut back on your HR team! More efficient employees because they’re healthy and on-the-job! That kind of stuff. If the Conservatives’ budgeting steps really do cause the crisis I’m suggesting they’re designed to, we’ll see what happens to this little bit of persuasion.)
