When Franklin Roosevelt confronted the Depression, his strategy was to throw everything at the problem and see what worked, saying “It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”
In many ways, this is the Roosevelt Budget: take a little of everything – Keynesian pump priming, old-school ditch digging, broad-based tax cuts, credit relief, financial regulation – and attempt to restore consumer confidence through the sweeping nature of the plan.
There are multiple political and policy implications to this wide-ranging budget.
Here are the first five observations, with many more to come.
1) Timing of Provincial Budgets
An unfortunate and unintended side effect of this budget will be lengthy delays in the provincial budgets.
Because so many of the spending programs require matching dollars, the provinces will have to completely retool all of their fiscal plans.
For instance, Ontario could probably have presented a budget later this week with its own stimulus package.
But with billions needed for matching new federal programs, all the earlier work is now shelved and the entire budget process must start again at zero.
It would surprise me if any province has a budget out the door before the middle of March.
2) Provincial Matching
So why so many matching dollar programs?
The Conservatives know they can only hope to survive their deficit spending with their own voters if there is no Canadian government outside the current policy consensus to attack them from the right.
As such, they need to lock the provinces into their spending priorities.
By creating matching dollar funds, they obligate the provinces to join them or leave dollars on the table.
The sheer size of these new programs will drive every province deep into the red. (And that includes you, Alberta.)
Also, remember that municipalities are backstopped by provinces - not the federal government - and have limited fiscal tools of their own. So the provinces are actually doubly obligated when programs are to be funded by the federal, provincial and municipal levels equally.
3) Quebec and Jurisdiction
Another reason the money will all be matching programs with the provinces is to side-step the jurisdiction argument.
But the federal government will want to keep strings on the money as well, both for political reasons (get money to Conservative ridings) and for financial management reasons (post-Sponsorship, take care where the money goes). This will lead to an inevitable fight with Quebec.
How the government reacts to those concerns over the next few days will tell us if it believes the road to power through Quebec is closed.
4) Permanent Tax Cuts
Income tax cuts for the low and modest incomes are not a bad thing per se.
But as I wrote before, they are an inefficient way to stimulate the economy.
Low-income tax cuts are better stimulus than those to higher incomes because they are more likely to be spent.
But their permanence troubles those who are concerned about getting back out of deficit. It is easier to end an infrastructure program than to repeal a tax break.
What is particularly interesting is that these are being billed as low-income tax cuts, when they may actually be broad-based as they are threshold and exemption changes that apply to everyone.
More on this one after I do some math.
(UPDATE: Math is completed.
As I suspected, the tax relief is not actually for the low and middle-income cohorts as advertised. Everyone will receive a tax cut.
The basic exemption goes up. That means some Canadians with very low incomes (around $10K) will no longer have to file income taxes at all. But all of us who do will also stop paying tax on that portion of our income as well.
And the thresholds for the first two tax brackets go up by 7.5% each.
