Let’s start with the elephants in the room – which are now mice.
The federal debt and deficit used to be massive and terrifying creatures, the pachyderm pair’s every movement obsessing politicians, pundits and voters. The verdict on a federal budget often came down to whether a finance minister was feeding the beast, or diminishing it.
But that was another country and another time. If you’re still tapping your feet to tunes about Ottawa’s “out-of-control spending,” and “exploding national debt,” you’re rockin’ to the oldies on a gramophone.
Yes, compared to the Harper years, the Trudeau government has slightly increased the size of government, as promised. Nevertheless, the budget deficit since 2015 has been consistently small enough to keep the debt level on a downward track. Ottawa’s debt-to-GDP ratio is the lowest in the G7, and falling. There is no fiscal crisis. Not even close.
So let’s move on to what matters in Budget 2019 – not the quantity of Ottawa’s spending and taxing, but its quality.
On Tuesday, Finance Minister Bill Morneau took advantage of a strong economy and booming tax revenues to spend the windfall, and fund several new initiatives. Are these about long-term economic benefits, or short-term political returns? Is Budget 2019 about investments, or giveaways?
The First-Time Home Buyer Incentive: Giving voters money to buy a home is always politically popular. That doesn’t make it economically logical. In a country where many housing markets are overheated, or were until recently, it’s hard to see a home-buying subsidy as anything other than counter-productive and self-defeating, and likely to push up home prices.
What’s more, the government is also allowing people to plunder – sorry, borrow from – their retirement savings, with the amount that can be pulled out of an RRSP to finance a home increasing from $25,000 to $35,000.
Investment or giveaway? Verdict: Giveaway. Big time.
The Canada Training Benefit: Think of it like an RRSP, but with the savings going to your own on-the-job training.
If you’re between 25 and 65 years old, and earning more than $10,000 and less than about $150,000 a year, you’ll get an annual $250 tax credit. The credit, which is earned each year up to a lifetime maximum of $5,000, can be used to cover up to half the cost of a course or program offered by a university, college or institution offering occupational training.
Just as the RRSP is a retirement savings program, the Canada Training Benefit is a savings program for adult education. What to study will be up to the individual.
Investment or giveaway? In theory, it’s a sound investment in upskilling the workforce. However, much of the money could end up spent on courses delivering little economic benefit, or subsidizing training that would have taken place anyhow. The devil will be in the details; a verdict could be years in coming.
Encouraging seniors to remain in the workforce: Low-income seniors have long received a monthly payment known as the Guaranteed Income Supplement (GIS). To encourage working seniors with low incomes to keep working – while avoiding a rapid claw-back of GIS benefits if they do – the government will eliminate the claw-back from the first $5,000 of income and exempt half of the next $15,000.
That makes this effectively a targeted tax cut aimed at low-income, working seniors. It’s designed to give them an incentive to keep on working, boosting both the economy and their incomes. Verdict: Investment.
An extra $2.2-billion to municipalities in 2018-19: Feeling flush, the feds are offering a one-time top up of the gas-tax revenues they already give to municipalities. The cash will fund infrastructure.
Money spent on infrastructure is, by definition, investment. But this feels like cash being shovelled out the door, for no other reason than that it’s there for the shovelling. Needed infrastructure or not? Investment or giveaway? It’s too early to say. Likely a bit of both.
Finally, the budget lays the groundwork for the Trudeau government to propose some kind of national pharmacare program in the coming months – in the run-up to the October election. But beyond that, the books don’t appear to leave much fiscal room for any party to fill its platform with big new spending plans – barring new tax revenues, surprise windfalls or considerable accounting creativity. Stay tuned.