Economy

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.  

Canada’s right-wing have fiercely denounced the Alberta NDP government’s first budget for its failure to deeply cut spending on social programs and public services so as to balance the books. The Fraser Institute has even gone so far as to claim, absurdly, that the large Alberta deficit of $6.1 billion this year is due to years of so-called over spending rather than because of the recent collapse of oil prices.

The briefing books being prepared for Prime Minister-designate Trudeau and his new Cabinet are likely warning of tough fiscal choices ahead. It will be very hard for the incoming government to reconcile a genuinely progressive platform on the social spending side with limited revenues, even given an acceptance of short-term deficits.

We can expect quick implementation of the new Canada Child Benefit, which will deliver higher benefits to all but the most affluent families with children and will significantly reduce inequality and poverty by being income-tested. This is the approach that has long been called for by Campaign 2000 and the Caledon Institute, building on the child benefit reforms of the Chretien government.

In the October 2013 Speech for the Throne, the Canadian government announced it would introduce balanced-budget legislation. At the time this vague proposal attracted little interest from anyone, although a year later the Parliamentary Budget Office (PBO) did produce a substantial document analyzing the benefits and costs of such a proposal. 

The recent election was full of varying promises to increase growth rates and employment levels. Few of these promises, however, addressed a critical weakness in our ability to compete in global markets: significant literacy and numeracy skill shortages. 

This is a critical area where the federal government has a vital role to play.

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.

The recent conclusion of the Trans Pacific Partnership negotiations between Canada and eleven other countries has resulted in the usual chorus of condemnation by right wing economists of Canada’s system of supply management covering dairy, eggs and poultry. 

There has been a lot of talk during the federal election campaign about how to create more good, “middle-class” jobs. But there has been only limited recognition of the need for a much more active government role if we are to build the more innovative and sustainable economy we need to create such jobs.

When we talk about jobs during the current election campaign, we should be concerned about both the short term and the next few years. We badly need to create jobs now, and also need better labour market policies to avoid emerging skills shortages.

OTTAWA— A five-year $50-billion public infrastructure spending initiative would generate a return on investment to Canadians over the long term as high as $3.83 per dollar spent, trigger significant private sector investment and stimulate wage increases, according to a new study by an independent economic modelling firm.