Liberal leader Michael Ignatieff speaks with the liberal platform on stage during a campaign stop in Halifax on Sunday, April 3, 2011.Nathan Denette
One of the most significant challenges facing whoever forms the next federal government will be patching the $12-billion to $14-billion a year hole in the budget balance left by the cuts to the GST. The obvious solution is to simply reverse those cuts. Instead, the Conservatives and the Liberals are offering strategies that are not obvious solutions.
The Conservatives' plan -- as outlined in the March 22 budget -- is to hold operating expenses roughly constant at just under $120-billion over the next five years. This means deep cuts. Nominal GDP is projected to increase by 20 per cent over this period, so the cost of maintaining existing levels of services would otherwise increase to almost $145-billion. The budget documents are at best vague about how and where those cuts will be made.
The Liberal strategy -- as outlined in yesterday's platform -- appears to accept the Conservative strategy as a base case, so the questions I had about the credibility of the budget plan carry over to that of the Liberals as well. Both parties seem to be committed to five years of austerity, and neither seems to have given much thought as to where the cuts will fall. "Cutting waste" is a cliché that was already old when Brian Mulroney came to power.
But the Liberals have added less-than-credible elements of their own to the Conservative scenario. The most egregious is the claim that reversing the three-point reduction in the corporate income tax (CIT) rate will generate $5.2-billion a year in extra revenues. Again, this difference is with respect to the Conservatives' base case; it does not replace the promise to make large, unspecified cuts over the next five years.
To my knowledge, the Liberals have yet to explain how and why they obtained that number of $5.2-billion. As far as I can tell, the best available estimate is well under half of that. Even with the 'prudence reserve', planned new spending will exceed planned new revenues.
Elsewhere in the document, the Liberals promise to set binding, realistic short-term targets for gradual deficit reduction. I don't see how that commitment can be kept; the Liberal platform will make the deficit a harder problem to solve than it already is.
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