Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.

Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.

All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.

Learn more about Globe Unlimited and how to subscribe.

(Sean Kilpatrick/Sean Kilpatrick/The Canadian Press)
(Sean Kilpatrick/Sean Kilpatrick/The Canadian Press)

Economy Lab

Stop fudging: Why Ottawa must hike taxes, cut back Add to ...

The most important problems with the budget that was tabled in the House of Commons yesterday were the less-than-completely-credible projections for revenues and expenditures over the next five years. Revenue estimates were predicated upon the federal government’s abandonment of boutique tax cuts that had offset the revenues which would have otherwise been produced by increasing incomes, and expenditure forecasts were based on unspecified future cuts in spending.

More related to this story

But now that it looks as though the budget will not pass and that we will be having an election, it’s only fair to note that the Conservatives are not the only ones with such credibility issues.

It’s important to remember that the federal government is running a structural deficit. The budget’s credibility issues do not involve implausibly optimistic assumptions for economic growth. The problem is that even with that growth, the deficit will persist unless something is done: spending will have to be reduced, or taxes will have to be raised.

The story changes only slightly if the recent cuts to corporate taxes are rescinded: the real challenge is to fill the hole left by the cuts to the GST. The Conservatives’ solution was a set of dodgy assumptions about slowing the rate of future spending. Strategies that involve higher rates of spending without significant increases in taxes – of a size on the order of those lost from the GST cuts - are even less credible.

This will be something to watch in the upcoming campaign. The party that forms the next government will have to implement a combination of tax increases and spending cuts on the order of $12-billion to $14-billion. The only real question is how.

Follow Economy Lab on twitter

Follow on Twitter: @stephenfgordon


In the know

Most popular video »


More from The Globe and Mail

Most Popular Stories