All signs are pointing to a budget of relatively modest ambition from federal Finance Minister Bill Morneau.
The economy is in reasonable shape, the budget deficit is shrinking and the next election is still a year and a half away.
But complacency is dangerous. Canada is facing a host of new threats, including protectionism and faltering competitiveness, that will sap future economic growth and government revenues. Mr. Morneau and the federal Liberals risk squandering an opportunity to get ahead of these challenges.
Here, then, are a handful of worthy ideas that you likely won't see in Tuesday's budget:
A Netflix tax
In the early years of the internet, there might have been a public-policy rationale for keeping the web free of taxes. That time is long past. It makes no sense that Canadians pay the goods-and-services tax on digital content they buy from Canadian companies, but not on many similar services purchased from U.S.-owned giants such as Apple, Google and Netflix. The inequity creates a disincentive to buy Canadian and deprives Ottawa of much-needed cash it could use to promote homegrown culture. It's time to level the playing field.
A competitive corporate-tax regime
The recent U.S. tax-reform package has turned what was a Canadian advantage of roughly eight percentage points in the marginal effective tax rate on new investment into a handicap. With uncertainty hanging over the North American free-trade agreement, Canada can't afford to lose any more ground. Ottawa needs to make sure Canada remains an attractive place to invest from a tax standpoint. Lowering rates could prove politically difficult. A shadow budget released last week by the C.D. Howe Institute urges Ottawa to look at other options, including faster tax writeoff of business investment and targeting the small-usiness deduction to growth-oriented companies.
Scrap special-interest tax breaks
Canada's tax code is filled with a plethora of special tax breaks for selected demographic groups, such as firefighters, teachers and first-time homebuyers. These measures fulfill dubious public-policy aims and are generally too small to influence behaviour. They exist because previous governments wanted to curry favour with parts of the electorate. But they sap revenues and needlessly complicate tax filing. Ottawa could save $170-million a year by getting rid of many of the worst examples, according to the Canadian Centre for Policy Alternatives' 2018 Alternative Federal Budget.
Innovation incentives that work
Canada has been talking for at least a decade about reforming how it doles out research-and-development cash, particularly to the private sector. Ottawa spends $5-billion a year encouraging companies to innovate, including roughly $3-billion in tax breaks through the Scientific Research and Experimental Development Program. Unfortunately, these various incentives aren't working. Businesses spent less in 2017 than they did a decade earlier. Canada lags behind most of its major trading partners in R&D spending as a percentage of GDP. Mr. Morneau should listen to his Advisory Council on Economic Growth, which says Ottawa should invest in programs that deliver tangible results and scrap the rest.
Shrink the CBC
Prime Minister Justin Trudeau recently touted the government's injection of more money into the Canadian Broadcasting Corp. as an answer to the financial challenges facing local news organizations. He has it backward. The roughly $1.2-billion a year Ottawa gives to the public broadcaster – coupled with CBC's advertising revenue and free online content – are helping to destroy the economic viability of private-sector news. Ottawa should order the CBC to stop competing with the private sector for online ads, retreat from local news and focus on delivering high-quality national radio and TV programming.
Tax the gig economy
The ride-hailing and home-rental industry could be a revenue gold mine for governments, which face massive infrastructure needs. Uber and other services currently add federal and provincial sales taxes to their fares. Drivers are then required to remit the money to tax authorities. But there is room to collect more. Several U.S. cities and local governments are now imposing special levies on ride hailing – to pay for transit, roads and bridges, schools and other underfunded needs.
Explore a basic national income
The time has come for the federal government to get serious about a basic wage for people who are out of work or stuck in low-wage jobs. Ontario is spending $150-million over three years testing the concept in Thunder Bay, Hamilton and Lindsay. The hope is that paying people a basic income with no strings attached will do more than existing social programs to improve their health, skills and job prospects. With technology displacing too many people in the modern workplace, here's one promising solution that's worth a closer look.