About the best thing that can be said of the New Democratic Party’s fiscal plan is that it concedes there is no free lunch.
The NDP’s costed platform, released with barely a week to go in the federal election campaign, is upfront about the reality that its plan to spend an additional $214-billion over the next five years is contingent on some Canadians paying much higher taxes.
Yet, even by going all-in on soaking the rich, the NDP plan would still increase the deficit by almost $50-billion by 2026. And that is only if you buy the idea that an NDP government led by Jagmeet Singh could control its spending and that its efforts to squeeze the wealthy would not depress investment and growth.
“New Democrats would manage debt and deficits responsibly, running deficits when required to rebuild and defend the services that Canadians and their families rely on, and moving to balance [the budget] when it is prudent to do so,” the NDP’s costed platform states, providing a dose of comic relief in an otherwise boring campaign.
The party’s expenditure plans, which include its signature promise to spend $38-billion over five years on a national pharmacare program, hinge on a slew of new taxes and tax increases on wealthier Canadians. An NDP government would, for starters, increase the top marginal federal income tax rate to 35 per cent from 33 per cent, increase the capital gains inclusion rate to 75 per cent from 50 per cent and implement a 1-per-cent tax on household wealth of more than $10-million.
Even Liberal Leader Justin Trudeau, who is no slouch when it comes to using the rich as a political punching bag, thinks the NDP is out to lunch.
“The idea that you can go with unlimited zeal against the successful and wealthy in this country to pay for everything else is an idea that reaches its limit at one point,” Mr. Trudeau said on the weekend. “I don’t think the NDP get that.”
Taken individually, each of the NDP’s proposed tax increases on the wealthy is worth debating. But the party’s plan to introduce them all at once – on top of increasing the federal corporate tax rate to 18 per cent from 15 per cent and applying a one-time 30-per-cent tax on “excess” profits made during the pandemic – would be disastrous for the Canadian economy.
The estimated revenue such measures could raise is subject to a large margin of error. While the Parliamentary Budget Officer has vetted the NDP’s tax proposals on an individual basis, it has not assessed their overall impact on economic growth.
Much would depend on the behavioural response of the rich and what is called the elasticity of taxable wealth. But the degree of uncertainty underlying the PBO estimates is such that it would be foolhardy for any government to count on them.
What is certain is that higher income and capital gains taxes would serve as a disincentive for individuals to work and invest. And a wealth tax would lead people to move financial assets abroad and divest of domestic non-financial holdings.
That is why most governments that come to power promising to soak the rich eventually give up on such efforts.
After promising in last year’s Speech from the Throne to “identify additional ways to tax extreme inequality,” the Liberals have little to show for it. April’s federal budget included a luxury tax that is projected to bring in a measly $145-million by 2025.
The Liberal platform promises to introduce a minimum 15-per-cent tax for top income earners, “removing their ability to artificially pay no tax through excessive use of deductions and credits.” But the estimated revenue from that measure tops out at $423-million in 2026.
If the past is any guide, Mr. Trudeau’s Liberals should not be counted on to hold the line on the $78-billion in spending increases they have promised over the next five years, on top of the $100-billion in new spending outlined in their last budget. The Liberals have been notoriously sloppy when it comes to respecting their fiscal targets.
That is not to say the Tories deserve a prize for transparency, either. At the outset of the campaign, Leader Erin O’Toole said a Conservative government would balance the budget by 2031 by raising average annual economic growth to 3 per cent. But the party’s costed platform, released three weeks later, dropped the 3-per-cent condition altogether.
Over all, the math underlying the Tory platform remains fuzzy. The party says it promises to increase the Canada Workers Benefit, overhaul support programs for research and development, offer a 5-per-cent tax credit on new capital investment and reduce interprovincial trade barriers to boost real economic growth by 1.5 per cent in 2022, 0.9 per cent in 2023 and 0.6 per cent in each of the two following years. But it offers little in the way of empirical data to support those claims.
The signature Tory spending promise – a $60-billion increase in health care transfers to the provinces over 10 years – is back-end loaded. Under the Tories, the provinces would receive only $3.5-billion in new funding by 2025-26, but $56.5-billion over the following five years. The Tories nevertheless promise to balance the budget by then without raising taxes. It sounds too good to be true.
No party has stress-tested its fiscal plan against rising interest rates or a recession, despite the probability of one or both occurring during the lifetime of the next government. Each party’s plan is thus based more on fantasy than reality.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.