The Liberal election platform promised to “make the Parliamentary Budget Officer (PBO) truly independent” of the government and to make sure that the office is properly funded. The platform also promised to make government accounting “consistent and clear.”
It was, then, a bit surprising that the PBO had to make a formal request for information normally provided in the federal budge, and was forced to provide its own estimates for the missing numbers in its report to Parliament on April 6. The Department of Finance finally released the requested information only on April 8, more than two weeks after the budget was delivered in the House of Commons (on March 22nd.)
As expected, the federal budget delivered on the Liberal promise to leave the age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS) retirement benefits at age sixty five. The Harper government had previously decided to phase in an increase to age sixty seven.
Many pundits have argued that the eligibility age should rise in line with longer life expectancy. They say that a higher retirement age would reduce the growing cost of the OAS/GIS program, and will boost the economy by pushing seniors to work longer.
The new Canada Child Benefit (CCB) unveiled in the 2016 federal Budget has been widely supported by progressives and anti poverty activists who have long favoured the expansion of income tested child tax credits. By contrast to the so called middle-class tax cut which favours the more affluent, the CCB will have a positive impact upon the lamentably high rate of child poverty in Canada (which stood at 16.5% in 2013), and will promote greater income equality among families with children.
Somewhat ironically, the new program is an unintended consequence of the regressive policies of the Harper government which opened up the needed fiscal room for progressive change.
The Budget reinvests significantly and appropriately in many important government programs broadly in line with the promises made in the Liberal platform. However, it falls short in some important areas, and the biggest failure is to restore federal fiscal capacity to support improved social programs and public services over the long term.
The bottom line is that the Budget increases federal government program spending from 13.6% of GDP in 2015-16, the last year of the Conservative government, to 14.6% of GDP in each of the next two fiscal years. This represents a significant increase in spending of about $20 Billion in the coming year, 2016-17. Program spending is, however, forecast to gradually decline as a share of GDP back to the 2015-16 level after the next two years.
The idea of a basic income guarantee for all Canadians has again moved to the front burner with the House of Commons Finance Committee and the Ontario government supporting further study and experimentation. This could be an important step forward, but incremental reform towards an income tested guarantee for working age Canadians delivered through the tax system will be the best path forward as opposed to more visionary “big bang” solutions.
The concept of a basic income has won support from both the political right and left. For the former, it promises to simplify complex income security programs and to replace most if not all welfare state programs with a single cash payment which would allow individuals to meet their needs in the market. For the latter, it is a means to free people from dependence upon the job market, a tool for social solidarity amidst a rapidly changing world of work, and a means to abolish poverty.
Developments in the Canadian economy have forced an important re-thinking of the respective roles of monetary and fiscal policy in supporting stable growth and job creation. But mainstream thinking about monetary policy has evolved much further than that on fiscal policy.
Before the great recession of 2008, fiscal policy had fallen greatly out of favour as a tool for macro economic stabilization. The conventional wisdom was that central banks could adjust short term interest rates to keep the economy growing more less at potential with low inflation, and indeed there was no recession from the early 1990s until the financial crisis of 2008.
With a plunging Canadian dollar, collapsing oil prices, slumping stock markets and signs that the economy stalled in the last quarter of 2015, it is easy to think that we are on the cusp of economic disaster. But the state of the Canadian economy, while indeed dismal, does not justify alarmist pronouncements that threaten to make things even worse by undermining consumer and business confidence.
The recent federal election featured something of a debate on fiscal policy, with the Liberals promising to run modest deficits for three years in order to stimulate a sagging economy and finance needed long-term investments in infrastructure and social programs. This approach won wide support among both progressives and mainstream economists.
The so-called “middle class” tax cut promised by the newly elected Liberal government in the name of promoting greater fairness seems set to be quickly implemented for the 2016 tax year. Yet the distributional and revenue consequences of this measure are often misunderstood, and the proposed change merits reconsideration.
Currently there are four federal tax brackets: 15% on taxable incomes of less than $44,701; 22% on further income up to $89,401; 26% on further income up to $138,586; and 29% on income above that amount.
Economists have a strong predisposition towards trade liberalization, which is held to increase efficiency and boost productivity through greater specialization in those sectors in which we hold a comparative advantage.
But the new Trans-Pacific Partnership (TPP) is likely to be damaging to our future prosperity by reinforcing our over reliance upon low value-added exports of raw and semi-processed resources, and by further increasing our chronic deficit in the trade of sophisticated manufactured goods and advanced services.