The Liberals’ Budget Promises Lots of Cheques But Avoids Tough Questions

This week’s federal budget filled 464 pages. By comparison, Bill Morneau’s first budget in 2016 only needed a skimpy 271. Some of the topics covered:

  1. Home Ownership: A new program will have CMHC provide low and middle-income first-time buyers with an interest-free loan for up to 10% of their purchase price, and buyers will be able to take more from their RRSP’s to help with down payments.
    In theory, this will help more Canadians own their homes, but sometimes these programs don’t work.
    Americans get tax deductibility for the interest portion of their mortgage payments. Canadians don’t. Yet American home ownership, at 64.2%, is less than Canadians’ at 67.8%.
    The budget’s program will mean that there are more buyers, increasing demand without any immediate impact on supply, which will drive up prices for everyone.
    Developers and home builders will be the winners.
  2. Pharmacare: The government felt the political need to talk about a national drug program, but avoided the hard questions. Will the provinces share in the cost? Will some out-of-patent drugs be excluded because cheaper generics or biosimilars are available? Why provide a huge gift to private sector employers who currently pay for programs for their employees?
    Expect more proclamations on this during the election campaign without addressing the tough questions.
  3. Deficits: The Liberals long ago abandoned their commitment to balance the budget. The economy has been robust in much of the country, so revenues are strong, but the Liberals keep finding new ways to spend. The deficits are not large, but things will become ugly if there is a downturn.
    Corporate executives get much of their employment income from options on their employers’ shares. The Liberals are moving to tax these as ordinary income rather than as capital gains, which are taxed at half the rate.
    This is a reasonable choice, but the resulting revenue should be used to reduce the top marginal tax rate, which is above 50% in many provinces.
  4. Jobs: Yet another training program is being created, the total now exceeding 100 programs costing $7.5 billion per year. The new one modestly subsidizes mid-career training.
    The budget’s hypothetical example describes a recipient receiving less than $2,500 over the life of his participation in the program, based on several factors including his income level, length of program, etc.
    The administrative cost for government and employers to deliver that must be substantial. Are all these micro interventions efficient? Could the money be better spent reducing taxes for low wage earners?
    Promised infrastructure programs will cost tens of billions over the next four years. With employment rates so low in much of the country, there may be a challenge finding the necessary workers.

The 464-page budget details initiatives addressing multiple constituencies, large and small: low-income seniors, post-secondary students, municipal infrastructure, electric car buyers, patients suffering from rare diseases, aspiring musicians, and many more.

Yet some big topics were ignored.

  1. Climate Action: The government’s initiatives so far to reduce greenhouse gas emissions fall far short of what is necessary to meet Canada’s commitments under the Paris Agreement.
    The results will be even worse if the provinces successfully challenge the proposed federal carbon tax. The budget has no new initiatives, nor does it acknowledge the problem.
  2. Medicare: When Medicare was first introduced, the federal government paid half the cost. Subsequent reductions have brought that down to about a quarter. This has understandably made provinces wary of federal proposals for new cost-shared programs and will certainly colour any discussion of pharmacare.
    Health care represents up to half of provincial program spending. To keep control of their budgets provinces have had to limit supply, often resulting in long wait times.
    The federal budget talks about helping in the periphery—dementia strategies, suicide prevention, facilitating transplants—but fails to address the funding challenges of the provinces.
  3. Getting Oil To Market: While much of Canada has had good employment, the oil patch has suffered. Unemployment rates in Alberta and Saskatchewan are uncharacteristically higher than the Canadian average because their oil is landlocked.
    The Trudeau government has obstructed most of the efforts to build pipelines and botched its support for the one pipeline it approved. Meanwhile, some oil is moved expensively and less safely by train, and Eastern Canada is left to buy its oil from vile regimes in Venezuela and Saudi Arabia.
    Yet the budget contains not a word about how to get Western oil to market.

This budget has dozens of spending promises, but no grand vision of where the country should be going. Perhaps Liberal partisans were hoping that this would move them away from the shadow of the Wilson-Raybould mess.

Then former cabinet minister Jane Philpott told Maclean’s magazine that there was far more that needed to be said by her and Wilson-Raybould, if not prevented by Trudeau. SNC CEO Neil Bruce told the Globe and Mail that they did not cite job losses or threaten to move the head office to London as a reason to receive the help they were seeking. Not a good day for Trudeau’s credibility.


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