What will be (and what should be) in the federal budget

Stephen Gordon on good and bad ideas to look out for

Economists try to make a clear distinction between making positive statements (what will happen) and normative statements (what should happen). These two concepts are very different, and it’s a good idea to keep this distinction in mind when speculating about the budget on March 21. A few points off the top of my head — I’ll probably come up with more during the next week:

Good ideas that will probably be in the budget:

  • Training/education. We’re hearing a lot about the mismatch between the skills that employers are looking for and the skills that job-seekers actually have.  This is is serious problem, and it’s amplified by demographics: there aren’t that many new people entering work force. Happily, this is an area where the Conservatives haven’t actually staked out a strong position, so they may base their proposals on the best advice the public service can provide. Measures should be read with an open mind.

Good ideas that probably most definitely will not be in the budget:

  • A carbon tax. It’s a measure that would allow the government to cut other taxes (or increase spending, but it’s a Conservative government) and would very likely remove much of the opposition to the various pipeline projects that are on the table. It’s also a measure that enjoys the support of environmentalists, economists and the oil companies.
  • Something – anything – that will make it easier for Canadians to understand what’s going on with public finances. Last year, the government decided to change their accounting rules without updating the historical data. Also, the budget numbers have nothing to do with the spending estimates, and the only agency with the mandate and the resources to try and figure it out is the PBO. Too bad the agency has been put in a plastic bag and left dangling from a thread suspended from the Alexandra Bridge.

Bad ideas that will probably be in the budget:

  • More boutique tax credits — marketed as tax relief for households occupying a demographic niche that Conservative polling has identified as being in play.
  • More pork for businesses — concentrated in regions that Conservative polling has identified as being in play.

Bad ideas that will probably not be in the budget:

  • A renewal of fiscal stimulus. We’re not in a recession. And unless we want to relive the deficit/debt spiral of the 1970s, 80s and 90s, we don’t want to get into the habit of implementing fiscal stimulus because we think there’s a chance we might be a recession soon.

Wishful thinking:

  • Getting rid of the nickel. They should have done this when they eliminated the penny. It’s time to finish the job.



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What will be (and what should be) in the federal budget

  1. A so-called “boutique” tax credit should not be declared bad by nature but each one should be subject to a cost/benefit analysis. The transit credit, for instance, has negatives in that it is unlikely to affect one of the stated goals of increasing ridership, and the money might be better spent as an increase in operating capital to the system.

  2. The Liberals should capitalize on these useless boutique tax cuts Harper brought in, which amount to tens of billions of dollars every year. They are nothing more than a component in Harper’s perpetual campaigning machine (and not surprisingly, he leeches millions a year of taxpayer dollars in free campaign advertising promoting them.) If Harper really knew anything about economics, he would bring in tax cuts that benefit the economy, not his numbers in the polls.

    The Liberals need to own the economy and appeal to moderate conservatives to win in 2015. Getting rid of these inefficient tax expenditures that do nothing but complicate the tax code is a great place to start.

  3. “And unless we want to relive the deficit/debt spiral of the 1970s, 80s and 90s, we don’t want to get into the habit of implementing fiscal stimulus because we think there’s a chance we might be a recession soon.”

    There was no debt spiral in the 1970s. But the ones in the 1980s and 1990s were largely brought on by high-interest inflation-fighting monetary policy of central banks. This policy (e.g. “Volcker Shock”) was to manufacture recession, not use fiscal stimulus to end it. The deficits were the result of severe recession and high debt-servicing costs.

    We are in a different economic environment altogether now. What we see is that Western economies are caught in liquidity traps (where near-zero interest rates are not enough to spur a real recovery.) So what we are likely to see is economies falling in and out of recession failing to launch recoveries.

    Japan has been stuck in this trap for 17 years, with interest rates at 1% or lower. Without significant GDP growth, government debt becomes much more burdensome (which is measured in debt/GDP.) Japan now has 220% debt/GDP, which is higher than all the bankrupt US PIIGS.

  4. If the Conservative’s jiggery pokery 2013 budget can’t balance the books by 2015 as Mr Flaherty has predicted, they can always resort to the customary tactic of blaming it all on the Liberals, the NDP, the Russians, the Chinese, the Keystone XL pipeline, and solar flares.

  5. We’re hearing a lot about the mismatch between the skills that employers
    are looking for and the skills that job-seekers actually have

    Yup, but what we’re not hearing is that employers should be training their own workforce. Instead we’re only hearing that the taxpayer should be doing it for employers and that is corporate welfare by another name.

    • That’s absurd. A company that needs electricians or computer programmers or whatever is supposed to train their existing employees? That’s not the way it works. It’s up to government to foster human capital and provide the skilled workforce businesses will put to work. Public education programs from high school to student loans are what makes the difference between a high-productivity developed country and a developing one which has a fraction of it’s productivity.

      Of course we are really stuck in the 1960s when it comes to our approach to developing the skillset of our workers. Back then a high school diploma could get one a job. Not any more. I like Justin’s proposal to ensure 70% of the workforce has some for post-secondary education or worker training. This is a supply-side approach to creating jobs: build it and they (the businesses) will come.

      But I wouldn’t expect too much from the Conservatives on this one. They are essentially killing $2.5B in existing worker training they delegated to the provinces in order to announce they are investing $2.5B in working training. Just another Con shell game. Then that will justify (in their minds) tens of millions more in self-promoting “Action Plan” ads.

      • I think you’re lumping skills and education into one category. The two things are separate and employers are not responsible for educating employees. Skills however, are something employers should be paying for and there was a time when they did.

        • Think apprenticeships for all Trades positions the country needs. Pay special entry wages that rise as skills are gained over a few years leading to to Trades certification and the full rate. To gain certification provide evening classes through the education system to provide the theory involved in the trade.

    • Any opinions why this isn’t happening?

  6. I would actually find it extremely, fantastically, amusing if the Conservatives did put a carbon tax in the budget. I think the cognitive dissonance would probably be enough to implode half of Ottawa

  7. A carbon tax is a bad idea. Global warming is not a problem. There has been no warming for 16 years, and soon scientists will backtrack from their outlandish claims. Following that, the general public will eventually learn the reality. So there is no reason to create a new form of taxation.

    Getting rid of the nickel seems a little bold.

    I don’t think that training should not be a federal responsibility. We already have schools, colleges, universities, etc, and in addition more training should be borne by employers.

    • You guys really want to die on this ‘no carbon tax’ hill?

      • Oh come on JanBC. Don’t try to change them. They’re are a constant source of entertainment.

    • “Getting rid of the nickel seems a little bold.” NOT TRUE. I agree it should have gone when the penny went and study the demise of the dime at the same time.

    • They cannot just come to you and ask for a money, they put this as carbon tax. Next will be air tax, secutity tax, you named….

  8. The leading good idea that definitely won’t be in the budget: Getting rid of supply management for dairy, eggs and poultry. Start now the gradual process of phasing out quotas.

  9. Hope they keep the Mulroney thugs out of the pork trough!
    Stay “honest”. Harper is honest – but are everyone in his cabinet?

  10. The budget should be the Alternative one presented by the CCPA.

  11. Poor Canadians, just open your door for carbon tax and next will be air tax, security tax, etc.
    They will find new ways to suck monies from you, “with your support”.

  12. Funny thing about the Carbon Tax, I work with over 250 environmentalists, Dr.’s and fellow engineers, and of them all, well lets just say that only two surveyed last year agreed with a carbon tax. What survey says?

    • Where do you work?

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