Welcome to the New Federal Finance Minister
Posted October 30, 2015
Congratulations! You have the second most important job in a majority government. Not only that, your party campaigned on an anti-austerity platform so your first three budgets will not be expected to include the tough decisions necessary to balance the books.
You can cut taxes for the middle class and run up deficits of $10 billion in the first two years. You are just fulfilling the mandate you were given by voters.
If only it could be that easy. Your party’s 88 page platform document contains a lot of promises. The cost of some of them is not in the fiscal plan, and the benefits projected for some of the tax measures are dubious.
- Taxing Stock Options: Your platform forecasts initial savings of $500 million growing to $3 billion annually in year four. A specific breakdown is not provided but about $500 million appears to come from taxing income in excess of $100,000 from stock options.
The problem, as noted by tax expert Jack Mintz, is that making the income taxable in employee hands will make it deductible to employers, wiping out the expected increase in tax revenue.
- Spending Review: The rest of the $3 billion is to come from reduced advertising, more rigorous tax enforcement, and finding other savings. Apart from advertising Harper’s government was not noticeably spendthrift. In fact other parts of your platform criticize the Conservatives for not spending every cent that was authorized. It will be surprising if another $2.5 billion can be realized from these sources.
- Higher taxes on income above $200,000: This is forecast to produce more than $3 billion per year, driving the combined federal-provincial marginal rate in Ontario, Quebec, and Nova Scotia to about 54%. When marginal rates get that high taxpayers find additional ways to reduce taxes. A successful entrepreneur might decide to move south of the border. A neurosurgeon might decide to work fewer hours. A business owner will take more of his or her income in dividends, and share more of them with the family.
Experience in other countries strongly suggests that the revenue from this measure will be less than expected.
- Health Accord: Your platform makes specific provision for new spending on homecare. It also promises a new Health Accord with provinces and territories, including a long-term agreement on funding, but the fiscal plan does not include any estimated cost.
The provinces will no doubt be delighted to renew dialogue on health care with the federal government but the first and only item on their agenda will be more money from the feds.
- There’s more: You platform promises to:
“…develop a pan-Canadian collaboration on health innovation, and improve access to necessary prescription medications. We will join with provincial and territorial governments to buy drugs in bulk, reducing the cost…”
“… make high-quality mental health services more available to Canadians who need them…”
“… stop Stephen Harper’s plan to end door-to-door mail delivery in Canada and … make sure that Canada Post provides high-quality service at a reasonable price to Canadians, no matter where they live.”
“… meet with provinces, territories, and Indigenous communities to begin work on a new National Early Learning and Child Care Framework, to deliver affordable, high-quality, flexible, and fully inclusive child care for Canadian families.”
Your platform’s fiscal plan provides no funding for any of these items.
Your platform promises to “…ensure that the Kelowna Accord – and the spirit of reconciliation that drove it – is embraced, and its objectives implemented in a manner that meets today’s challenges…” The promised annual funding of $750 million is less than the $1 billion that the Kelowna Accord was forecast to cost back in 2005.
- Canada Pension Plan: Your platform promised to “… work with the provinces and territories, workers, employers, and retiree organizations to enhance the Canada Pension Plan.” That is a good idea, if properly funded, but the additional employee contributions may largely offset the middle class tax break that people are expecting. It will be true that a retirement savings plan is different than a tax, but not easy to explain given that both are going to the government.
Of course actual results will vary because of things you can’t control like long term interest rates, prices for oil and other commodities, and economic health of our trading partners. But given your party’s commitment to transparency Canadians will still know if you are spending money in areas where none was promised.
So it turns out you have a very tough job. Good luck!
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