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The provinces are doomed, but the federal parties will have a surplus to play with

Mo’ money, mo’ problems?


 

Scott Clark and Peter DeVries consider the federal and provincial situations and look ahead to a 2015 election campaign in which the parties will have a projected surplus to play with.

What this means is that the 2015 election will be fought over how each political party proposes to use the surplus the federal government is forecasting. The PBO concludes that “the federal government has fiscal room to increase spending, decrease revenues, or some combination of both” without jeopardizing fiscal sustainability”. Mr. Harper has already committed to using some of this fiscal room to allow income splitting for families with children under the age of 18; extending the fitness tax credit to adults; and, increasing the tax-free contribution to savings accounts to $10,000. These commitments were made in the 2011 election. Given the problems facing the Canadian economy, these are probably not the best uses of the surplus if the objective is to create jobs and strengthen long-term economic prosperity. The other political parties can wait before presenting their platforms on how they would use the surplus.

Both us were involved in the planning of surplus budgets after 1998. Our experience is that managing a surplus can be just as difficult as managing a deficit. Mr. Chretien made it easy: one-third to new spending; one-third to lower taxes; and, one-third to lower debt. As it turned out, this formula worked out pretty well.

The Harper government put the federal budget on a sustainable track when it changed the rate of increase in health transfers to the provinces, so one of the first questions might be whether either of the New Democrats (who have complained about the reduction) or Liberals (who have also complained about the reduction) would restore some or all of the transfer rate.

And you can add this projected surplus to the debate on taxation.


 

The provinces are doomed, but the federal parties will have a surplus to play with

  1. Planning? What are you communists?

  2. So what happened to the “structural deficit” that I have read about countless times on these comment boards?

    • There is structural deficit. The Feds shifted it to the provinces. The provinces deliver most of the services while the Feds have a larger than needed taxation capacity. But its not taxation that is easily transferred as some provinces are far wealthier than others. I.E. Oil. The best solution remains that the Feds retain their taxation ability and transfer monies to the provinces to counter such things as those who work in one province and pay taxes there to consumer services in another. IMO its would be fair for the Feds to account for 50% like they used to of costs for major services like health and education instead of 20% they do now.

      • That’s not the “structural deficit” that a lot of people on these boards were talking about. A lot of people on these boards were implying that Harper/Flaherty had created a situation by which we would never be in surplus again at the federal level.
        Anyway, do you have a reliable source for that 50% vs. 20% figure that you mentioned above?

        • Maybe the structural deficit Stephen Gordon was talking about a while back. Must say you, (as Orson Bean), could have have put up a stronger defence of the government.

          www2.macleans.ca/2012/10/08/the-department-of-finance-finally-agrees-with-the-pbo-the-federal-government-is-running-a-structural-deficit/

          • Jan, I take Gordon’s point — often I have a lot of time for the guy. But this time, the facts are not bearing him out. I personally opposed the GST cut, but the fact is, if this government can bring us into surplus with a 5% GST by 2015 and onwards, then at the federal level we no longer have a “structural deficit”. It all depends on how sustainable that is, of course, but the Harper-haters on this site (like you) were outright claiming that because of the Evil Harper and his Henchman Flaherty, we were headed into an era of permanent federal budget deficits. The facts are pointing the other way.

      • I also note that if offloading to the provinces is the cause of the “structural deficit” that you speak of, then this “structural deficit” is not a Conservative/Harper/Flaherty creation; rather, it’s a Chretien/Martin creation, because it was the Martin budgets which initiated a massive offloading to the provinces. But of course, that’s not what we hear from the Wherryite Liberals on these comment boards; instead, they go on and on about this presumed Conservative-created structural deficit.

        • The tories by refusing to return health care contribution to pre Martin days are essentially doing the same thing that the liberals did. How is that any better. The 20% that the federal contribution is going back down to has been widely reported. It used to be 50% before the chretien libberals ran their budgets through with tory support.

          • So in other words, you agree that the problem you’re complaining about was created by the Chretien/Martin Liberals. Your beef with the Conservatives apparently is that they’re not reversing something that the Chretien/Martin Liberals initiated.
            In the meantime, Wherry posts an article in which people are wringing their hands about what to do with an impending federal budget surplus — when for years, the Liberal Wherryites who overpopulate this site have been swearing up and down that Flaherty will never ever balance the federal budget, because conservative governments never ever balance budgets. Fascinating.

          • Of course they did and of course the tories supported the cuts. Both then and obviously now. And maybe you’d get a bit more ahead and realize not all posters here who dont agree with you are liberals. Im certainly not.

          • I was recently at the nutritionist and she told me the hospital she works at has oodles of money and is spending it on programs she and many other staff found questionable. I think health care has plenty of cash – it’s just being wasted by poor management. At least here in Ontario.

          • I work in health care and dont see such spending. In fact I see wait lines for surgeries and surgeons who are told they have no access to operating room time because of lack of monies. Maybe if you gave an example instead of vague comments.

      • “The provinces deliver most of the services while the Feds have a larger than needed taxation capacity.”
        This is nonsense. The provinces have substantively the same taxation capacities as the federal government (they can’t levy tariffs, but that doesn’t amount to much for the feds either) – they can levy income taxes, value-added taxes, you name it, just like the feds can. The provinces have a structural imbalance because their politicians like spending money, but not raising money (i.e., taxes), so prefer to have the feds bear that burden.
        In any truly accountable system of government, each level of government should have to fund its own program spending, to ensure that their voters are faced with the true costs of their decisions (Want more health care? Cool. it’s going to cost you. Want lower taxes? Cool. It’s going to cost you).

        • Its doesnt change the fact they cant tax the entire country the way the Feds can. Feds can access oil and other such revenue and its vast spin off developments through income and sales taxes in one province that doesnt exist in another. You can keep burying your head in the sand over this simple fact but it doesnt change the reality that we dont all live in provinces that have vast wealth or infrastructure to attract business. If you want to live like americans with their absurd states rights above all else then by all means move to the US. I call myself a canadian before I call myself anything else.

    • The government has (mostly) eliminated it by cutting services, raising taxes, and downloading costs onto the provinces. Don’t worry, if they win the next election, they’ll manufacture a new structural deficit so that they can repeat the process.

      • How has the government raised taxes? Are you talking about the feds here?

  3. Devil’s Dictionary – Economy: Purchasing the barrel of whiskey that you do not need for the price of the cow that you cannot afford.

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