Canada’s Prime Minister Stephen Harper speaks to employees of a tile and stone manufacturing company in Toronto on Tuesday.Chris Helgren/Reuters
It's too soon to say whether the idea of paying homeowners to fix up their homes will be a winner with voters. But it can be said for certain, right now, that the Home Renovation Tax Credit put forward on Tuesday by Conservative Party Leader Stephen Harper is not a sound idea, economically or fiscally.
Mr. Harper says that, if re-elected, he will bring in a permanent tax break for homeowners. Do any renovations worth between $1,000 and $5,000, and you'll get a tax credit worth 15 per cent of the value of the work. The Conservatives estimate this will cost about $1.5 billion a year.
The promise is a revival of the renovation tax credit the government introduced in 2009 – but that was a temporary, one-year, recession-fighting measure. The idea was to get stimulus money into the economy, quickly, by subsidizing Canadians into spending: If you agreed to spend a dollar, the government would give you 15 cents. In the middle of a global financial panic, it was a clever way of delivering stimulus.
But 2015 is not 2009. Absent a repeat of the worst downturn since the Great Depression, there's no logic in reintroducing this crisis measure. And absent a state of perma-recession, there's no call for making the tax break permanent.
And if Canada is, in fact, currently in a recession, this won't do anything to ease it. Mr. Harper says the tax credit won't come into effect until "mid-mandate," or roughly two years from now. The tax measure is also regressive: Only homeowners are eligible, not renters. And it will be economically illogical, with the estimated $1.5-billion-a-year cost spent entirely on the housing and construction industry. Canada has long been seen as having an overheated housing sector; why subsidize even more spending?
It's not as if other parties haven't dabbled in this area. Back in 2010, NDP leader Tom Mulcair – then the party's finance critic – called on the government to extend the one-year renovation tax break. And the Liberals and NDP in the past favoured programs that paid people to make their homes more energy-efficient. These often involved using taxpayer dollars to reward homeowners for saving money, something many would have done anyhow. Conservatives generally opposed these approaches and scaled them back or eliminated them after coming to power a decade ago. The Conservatives had the right idea then. Not anymore.