Business

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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