Janice MacKinnon is a former Saskatchewan minister of finance and current professor of public policy at the University of Saskatchewan
The 2017 federal budget is a stand-pat budget that primarily fleshes out spending announced previously; though it adds little new spending, the country’s debt increases and difficult decisions are postponed.
In its first budget in 2016, the new Liberal government set aside its election promises to limit deficits to $10-billion, balance the budget by 2019-20 and lower the debt-to-GDP ratio to 27 per cent. Instead, the budget contained major new ongoing spending. The only remaining fiscal anchor is the government’s commitment that the debt-to-GDP ratio will decline, and the latest budget barely attains that goal. Adding significant new spending in this budget would have left little fiscal room to respond to new challenges, the most significant of which are the fiscal and economic policies of the new U.S. government. So, there is rationale to support a stand-pat budget.
A major omission was the lack of a detailed plan for balancing the budget. Setting out specific spending and revenue targets imposes an important fiscal discipline on governments. Few families have the luxury of spending without any budgetary framework, and governments are no different.
The stand-pat nature of the budget was reflected in the handling of tax credits. With more than $100-billion in tax credits, the government established a review with the intent of cancelling those that benefited the rich and recouping up to $3-billion for the treasury. In the end, few tax credits were cancelled (the transit tax credit one of the few to get the axe). Making major changes to tax benefits – for example, by taxing employee health and dental benefits paid for by employers – would have increased taxes for the middle class. That would have meant increasing taxes in Canada while the Trump administration is cutting them in the United States. Instead, decisions about the tax credits will be postponed.
While the budget announced little new spending, it did allocate spending announced in general terms in the 2016 budget. In the case of infrastructure, major spending on child care and a new national housing fund to prioritize housing for vulnerable groups such as seniors and Indigenous people was announced, but the funds will be spread out over the next decade.
With the government spending more than $186-billion on infrastructure, the Senate and the Parliamentary Budget Officer raised major questions that have been left unanswered. Where is the overall strategic plan for these investments, why are more than 30 government departments and agencies involved in approving the projects (a factor in delaying approvals), and why are there no tangible ways to measure the success of the projects?
More detail was also provided on the government’s plan to promote innovation. For years, governments have tried to foster innovation, but the main obstacles, such as the difficulty in commercializing research, remain. New initiatives to tackle innovation include providing more venture capital, creating clusters of business and academic excellence, and streamlining Canada’s innovation programs.
The government also proposes focusing on sectors, such as agri-food, where Canada already has a natural advantage and making changes – for example, improving transportation or access to markets – that could promote more growth in the sector. While the innovation strategy includes some good ideas, like other initiatives in the budget, the changes will occur well into the future, and it is questionable whether there is adequate funding to make a major difference.
Another major theme of the budget was enhancing the skills training available to Canadians. The many initiatives include improving access to and participation in post-secondary education – especially for under-represented groups like Indigenous Canadians – increasing co-op programs to give students practical work experience and providing more support for workers displaced by automation or globalization. The budget also announced the government would spend more than $200-million to create a new organization to advance skills training. The provinces are primarily responsible for training, so they will likely see the new initiative as an intrusion into their jurisdiction and question why yet another new entity is needed.
A stand-pat budget that delays major decisions may be justifiable today since the specific details of the Trump administration’s plans for the economy are still unclear. However, the general framework for President Donald Trump’s fiscal and economic policies are consistent with those of Republicans in Congress. The Trump administration plans to help the middle class by cutting taxes, including for the rich and business sector, reducing regulations and rolling back environmental initiatives to create jobs.
In contrast, the current Canadian government seeks to help the middle class by taxing the rich, providing more social programs and advancing an environmental agenda. Canada will have trouble competing with the United States if it remains wedded to an agenda that includes high taxes for upper-income Canadians, increasing premiums for businesses – particularly those for the Canada Pension Plan and Employment Insurance – and also has more environmental levies and regulations that adversely affect major sectors of the economy, such as oil and gas.
In an integrated North American economy, the Canadian government is going have to make difficult decisions to adapt to the new American reality so that Canada remains competitive. Failure to do so has the potential to cost Canadians jobs and opportunities.Report Typo/Error
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