How do you balance a federal budget? You show some spending restraint – but not so much restraint that you can't shower money across the country. Then, you thank your Maker for personal income taxes and the GST.
Tuesday's budget was chock full of little tax credits and small spending programs for a dizzying variety of groups and projects, as Prime Minister Stephen Harper's government's budgets tend to be. A few new spending programs were major, important and praiseworthy – for native education and university research, for example. But more were of the here-today, gone-tomorrow variety, with no agenda behind them for shaping the overall economy.
It is a steady-as-you go document, designed above all to balance Canada's books (by taking into account a $3-billion contingency fund) in order to bolster the government's political case as having been a careful steward of the nation's finances. "Boring," Finance Minister Jim Flaherty said of it, with reason and with pride.
After the terrible recession of 2008-2009, balancing the books will indeed, as the minister argues, provide the country with a margin for fiscal safety in an uncertain world. It is a testament to Canadians' political wisdom that they expect budgets to be balanced over time.
With a surplus beckoning next year and for years thereafter, the government's spending and tax-cutting machines will go to work in preparation for the election scheduled for the fall of 2015. A big political promise made by the Conservatives in the last election will be income-splitting – a very bad and expensive policy – and higher contributions for Tax-Free Savings Account.
The new programs announced Tuesday will garner the headlines, of course, but they obscure the budget's underlying themes: the role of tax revenues in turning a deficit into a surplus, and the creeping, inexorable increases in spending on the elderly.
Assuming it is re-elected, the Harper government forecasts the federal budget going from a $19-billion deficit in 2012-2013 to a $10-billion surplus in 2018-2019, a turnaround of about $29-billion.
Of course, this won't happen as forecast. If re-elected, the Harperites will either spend the money or cut taxes, or both, just as they did after inheriting a surplus from Paul Martin's Liberals. But staying in the budget's fantasy world, how would this $29-billion turnaround happen?
The budget predicts that revenues would increase by $76-billion, spending by $40-billion and payments on the national debt by about $7-billion. Bingo. There's the $29-billion turnaround, built on about $2 more in revenue for every $1 in extra spending on operating programs.
This 2-to-1 ratio will come from a government that makes a point of having cut taxes. Lower taxes allow the economy to "breathe," Mr. Flaherty argued Tuesday, which in turn results in munificent revenues for government. Those who believe that lower taxes eventually produce more revenue for governments will seize on the Conservatives' stewardship to buttress their case, although no one knows what would have happened if rates had remained the same.
The people Conservatives like to call "hard-working taxpayers" will be coughing up an additional $42-billion in personal income taxes during this seven-year period. Another $10-billion will come from higher GST payments. And $11-billion from corporate taxes. Other revenues will flow from smaller sources.
The GST cut, now deemed politically inviolate in that the other parties don't dare criticize it, costs about $12-billion in lost revenue.
Meanwhile, over on the spending side, one suite of programs dwarfs all the others. Over the seven years from deficit to surplus, elderly benefits will jump by about $14-billion to $54-billion – from 16 to 19 per cent of total federal spending. Spending increases on the elderly will outstrip growth in all other programs.
A million more people will become seniors from 2013-2014 to 2018-2019. Canada's elderly population will grow by 3.5 per cent a year (to reach 6.4 million) while government spending on them will rise by 5.3 per cent.
By contrast, those who fight for more money for children (Daycare? An enriched Child Tax Benefit?) should note that benefits for children will increase by $800-million over this seven-year period, compared to about $14-billion for the elderly. Demography drives budgets, regardless of what governments do. Seniors vote. Children don't.