Tax increase or spending cut?


More from the Parliament Budget Officer, this time in an interview with Canwest.

Page also believes that the deficit can be eliminated only with “significant discretionary actions,” the least painful of which, in his view and the view of other private sector economists, would be to increase the country’s consumption tax — the GST.

“It would be very difficult to see a surplus within the next five years without significant discretionary actions to bring it back into balance,” Page said in an exclusive interview with Canwest News Service and Global National on June 25, just as he was putting the finishing touches to the forecast he will publish Wednesday.

Loyal readers may remember this discussion.


Tax increase or spending cut?

  1. It would be laughable if it wasn't so depressingly predictable. When Harper, that freakin' brilliant "economist" pulled the boneheaded, cheap populist move of cutting the GST by 2%, economists of every partisan stripe told him it was a bad idea. But he did it anyway. Now where are we? With a big structural deficit in our economy.

    Gee, thanks Steve!

    • The GST cut did what it was meant to do:

      1) get Harper elected

      2) Turn the Liberals into the pro-GST party (anti-GST cut and pro-tax hike)

      • And screw good governance.

        • Don't have the player, hate the game, lol.

          • do you really think the GST cut got them elected? I'm not so sure that many people noticed. I think people were just tired of the Liberals.

          • I do hate his games and would rather not 'have' Stephen Harper. *shakes head and mutters* stupid idiot can't even get the dumb sentiment right.

    • "…every partisan stripe told him it was a bad idea. But he did it anyway. Now where are we? With a big structural deficit in our economy."

      Couldn't have said it better myself.

  2. Once again …. tax Cannabis make out like government bandits and put the violent bandits out of biz.

    • That would only give Obama an incentive to push his troops and tanks across the border.

  3. They're leaving out the other options:

    1) efficiency savings (not much admittedly)

    2) Grow the economy

    3) sell assets (especially money losing ones like AECL)

    • That isn't going to fill a $20 billion hole.

    • Not much left in efficiency savings…
      Growing the Economy: would require spending money, having a vision, and being capable of directing, not micromanaging.
      Sell Assets: yeah, like selling of the queens silver tea set at deep discounts.

    • Not much left in efficiency savings…
      Growing the Economy: would require spending money, having a vision, and being capable of directing, not micromanaging.
      Sell Assets: yeah, like selling off the Queens silver tea set at deep discount prices.

      • having a vision to grow the economy?

        Have you noticed how many free trade agreements Harper has signed in the last 3 years? Plus they're working on the EU, India and close to a deal with South Korea.

        Corporations are starting to move to Canada due to our lower tax rate compared to the USA. You may have noticed that Tim Horton's is now once again a Canadian company having announced that their HQ is returning to Canada to take advantage of federal tax cuts.

    • Option 2 isn't realistic in a recession, and the deficits big enough to require huge growth to even reduce it.

      Option 3 is very short sighted given the economic times. Buy high, sell low may a popular government strategy but it's pretty poor economics. There's no point selling even AECL right now for the prices we'd get on it. Wait til assets are properly valued before selling them

    • 1) Efficiency savings and program reviews are always an on going effort in government, so they can't be expect to produce windfall revenues–they're factored in.

      2) The PBO's projections already include economic growth–it's factored in.

      3) That won't help alleviate a structural deficit because asset sales are only a one time source of revenue. Asset sales only disguise the whole in the budget not fix it.

      • So….you guys really don't think that Harper would love to be "forced" to make spending cuts?

        That's the beauty of the GST cut. By limiting government revenue, you're eliminating government spending.

        I'd love to see an election where the opposition is promising to raise the GST.

        • "So….you guys really don't think that Harper would love to be "forced" to make spending cuts? "

          Stephen Harper was the biggest spending Prime Minister in our history, even before the recession. After Goodale cut $1.5 billion in his budget spending under Martin, it has been record spending increases under Harper ever since.

          Where, exactly, is there any single ounce of any indication that Harper would consider any real spending cuts, especially – most especially – if it might cost him votes????

  4. Critical_Reasoning, Wayne, jcf — defend the GST policy. The people demand to be enlightened.

    • You forgot to say "please". Also, I'm not sure why you feel that I supported the GST cuts. I didn't.

  5. This gets to the heart of Harper's Paradox. On the one hand, your base and your past self both want smaller government, fewer taxes, etc.; on the other hand, Canadians do not want cuts to program spending. Yet you passionately desire power, so what do you do? You pretend you are going to reduce the size of government by lowering taxes — to boost the symbolism, you even choose the one tax that everybody agrees is a good one. The result may be a giant void in the government's balance sheet, but what do you care? Your base is happy, you've bought your way into power with your constituents' money, and your past self's conscience is somewhat soothed. Party on.

    • And at some point you start chipping away at social spending because the provinces can't control
      themselves, it's unaffordable , we're not competitive, productivity issues, it's inevitable, and John
      Manley has a new job and told us so. And if the ideological Conservatives don't do it , the business
      Liberals will.

      • The business Liberals and anybody else who assumes the responsibility of the nation's finances — I wonder if that will ever include the NDP? — once the red ink gets too huge. Which is why, you'll agree, we need a Perpetual Covenant against structural deficits: the alternative being cycles of fiscal dishonesty followed by brutal cuts to essential programs. Nobody wants to relive the mid-90's downloading, so why are we trying to relive the early 80's?

        • Perpetual Covenant ?

          I respect the sentiment, Jack. But I'll wait to see how the current mess in California plays out.

          • It's a trainwreck, but it's because they already had a Perpetual Covenant in Proposition 13.

          • It's a trainwreck, but it's because they already had a Perpetual Covenant in Proposition 13. Unfortunately that one was with the Devil.

        • First, no, it won't ever include the NDP.

          Second, things don't look pretty, but don't be overly pessimistic. Look at the numbers relative to our economy. This isn't even CLOSE to the situation in the mid 90's. At least not yet. Assuming Harper doesn't embark on more "stimulus" and make it even worse, we'll be fine, and we won't need another round of draconian spending cuts to balance the books.

    • Harper saw his moral dilemma and asked himself "What would Jesus do?… Feed the multitude of course!" So he gave Imperial Oil another big tax cut.

  6. Three words: cap and trade. Kill two birds with one stone.

  7. To start:

    Cut at least 100 MPs

    Cut the Vancouver Olympics

    Cut GM Bailouts

    Cut the Senate

    Cut all Government payments to education

    • You have bad ideas.
      1. 100MP's cost next to nothing. It's not worth thinking about.
      2. Vancouver Olympics; the one and only one "stimulus" project we have underway that will actually work. In case you didn't know, it should also bring some tourists and consumers in. That tends to help.
      4. Senate? Same as point 1.
      5. WTF? The best way to make it out of an economic mess is to ensure the next generation can't read?

      BAD IDEAS. Except for 3. That GM bailout is rubbish.

    • Those are a small part of government spending (even the GM bailout). A handy guide (for 2006).

      • Cut the big and the small. Furthermore, lots of smalls could equal a big. By the way, I visited your link, the page says that the three biggest chunks of tax revenue go to 1. Interest Payments, 2. Transfer Payments, and 3. Other Program Expenses, do you not think that most, if not all, of the items on my lists affect, either directly and/or indirectly, one or more of these categories?

    • And let's cut the office of the Governor General and each of the Lieutenant Governors.

  8. Please, please cut Canada Post (however the circuitous route of funding it goes, I know its there)

    • Can we cut your internet connection?

      You should think before you write.

      • apparently he cut realism too.

        • The most patently ridiculous is canceling the Vancouver Olympics after the money's already been spent, invoking a PR disaster of monumental proportions. Just a bit dumber than selling the 407 for a song.

          • Actually, that's not even the most patently ridiculous. The only one that rose above foolhardy to controversial was the auto bailout.

          • I don't agree: Cutting the senate would be politically viable for sure.

            Selling Canada Post/Purolator Courier and eliminating 100 MPs are both excellent ideas, but neither are politically viable unfortunately.

          • Addressing the auto bailout:

            If you think it is an economic benefit to buy your jobs, then I advise you to run a business. Perhaps a restaurant would be nice. You could pay all your customers to eat your food and you would quickly become rich.

            It is sort of like that old economic joke, "We lose money on every sale, but we make it up on volume."

  9. So much hyperventilating over nothing.
    55 billion over FIVE years? What's that, 0.8% of GDP a year? (approx 1/15th of the American figure adjusted for population, if anyone is keeping count)

    That means only a deficit if the economy continues to be horrific. If it's anything even slightly less than horrific, such as pretty terrible, or quasi awful, we're likely going to be in small surplus range.

    Also, another easy strategy to get back into surplus is to take back some of that stupid "stimulus" spending which doesn't work, has never worked in the history of the world, and certainly won't work in Canada unless it stimulates the American consumer, and we can run a surplus even in a horrific year.

    Anyway, bottom line: I find it amusing how the same people demanding stimulus spending are also demanding increased taxes to pay for that stimulus, or angry that the Prime Minister decreased taxes before the recession and thus "can't pay for the stimulus". I mean politics and mud slinging is fair game, but do you guys SERIOUSLY believe in all that nonsense you write? Do you really believe the best way for economic growth is to increase consumption taxes, then have the government spend said taxes on random infrastructure projects, as opposed to simply letting the indebted Canadian consumer go and spend it themselves? Or do you really believe that if only Harper had not cut the GST, we would indeed be in BETTER economic shape today? Based on those arguments, GST and consumption taxes must actually HELP the economy, so the best way out of this mess is to increase the gst from 5% to say 200% and spend the gobs and gobs of cash on "stimulus". Brilliant.

    • You're relying on strawmen.

      First, the cumulative deficit will top $200 billion over the next 5-7 years, already factoring in a return to growth. That's a 40% increase in our debt level from last year.

      Most opponents of the GST tax cut argued that it is a good tax, and thus the worst one to cut. Better to cut corporate income tax, capital gains, etc. On the other hand, the cut in the GST put us into a structural deficit, which is probably unwise unless we're presented a plan to cut program spending. Harper presented no such plan, which was and is irresponsible. The GST cut was only mildly stimulative, for what it's worth. Almost any other tax cut would have a bigger effect, dollar for dollar.

      • Oops.
        Just read the 200 billion over 5 years in a paper. In the elevator today, the screen told me 55 billion over five years, that was what I based my post on. 200 billion over 5 years is indeed a serious problem. Let's keep in mind that assuming that is distributed evenly, that's 40 billion a year. In GOOD economic times, one percentage point of the GST brings in 5 billion. Even assuming Canadians are still spending like it's 2006 (even though they are clearly not), we would need to hike the GST from 5% to 13% just go cover the hole, so this is a little bit more complicated than simply rescinding the "irresponsible" Harper tax cuts. So to answer the question posed in the headline, it's going to have to be both tax increases AND spending cuts.

        And for the record, I agree that other taxes would have been better to cut, but I also think that cutting the GST was better than cutting nothing at all, unless of course the Ministry of Finance had those crystal balls that saw 2008 coming, in which case, we can look back and say it was very fiscally imprudent.

        • "unless of course the Ministry of Finance had those crystal balls that saw 2008 coming, in which case, we can look back and say it was very fiscally imprudent."

          That's like saying it's fine to forego a smoke detector or fire insurance, because you can't predict a fire.

          Wise financial planning has a lot to do with offsetting unknown future events. The current government – in their wisdom – saw fit to ramp up spending while surrendering billions of tax revenue that didn't measurably impact the economy or household wealth/spending.

          Sans crystal ball, we can still describe the GST cut as moronic on their part, never mind fiscally imprudent.

  10. The GST is to the Libs as kryptonite is to Superman.

    My recommendation to Iggy: Harper is going to accuse you of having a hidden agenda of raising the GST. All your denials won't help. So bite the bullet, and campaign on doing just that.

    Use the money to pay for Universal Child care, or whatever. You gotta distinuguish yourself from Harper in SOME way, and as a bonus, you blunt Layton's attacks on you being no different than Harper.

    • Funny, isn't it? Ignatieff seems to be a few millimetres away from Harper on the key issues, including Afghanistan, the stimulus package, the auto bailouts, the environment, international trade, the relationship with the United States, and the oilsands. It's awfully hard to be Opposition Leader when you secretly agree with most of the Government's key policies.

      • Fortunately those are all Paul Martin's policies.

        • Really? Under Paul Martin's watch, Canada's relationship with the US soured to its lowest point in decades, while for a time he allowed unrestrained anti-American sentiments to be voiced by his caucus, and he personally attacked the US President in his campaign speeches and political advertising. I would suggest that, in some cases, Martin's policies differ from the Harper / Ignatieff policies.

          • Well, good point, but what did it add up to, apart from tone? Likewise with Harper's policies — there really aren't any, just a series of symbolic gestures like his Tough on Crime rhetoric, Khadr & Abdelrazik, etc. The one thing he's actually done is cut the GST; otherwise it's business as usual. I'm not blaming Harper for his banality, just saying that Ignatieff's lack of new policy ideas is typical of all Canadian politicians at this time: nobody has the political capital to say anything original. My question is, is this temporary, or have we finally come to the end of the road, with all the special interests armed to the teeth, all the arguments against every form of change learned by rote? Will Canadians ever vote for anything again?

          • "Fortunately those are all Paul Martin's policies."

            If Martin and Ignatieff both had/have the same policies as Harper what does that the Liberal Party?

            "Nobody has the political capital to say anything original."

            Take a look at all three of the NDP motions passed this last spring in parliament. There are a lot of ideas there.

          • Will Canadians ever vote for anything again?

            That's a good question. I sure hope so. The alternative (more of the same) would be way too depressing.

      • We do not have an Opposition Leader, we have a Deposition Leader.

  11. It is pointless to criticize the government as being the "biggest spender ever" or to reflect on the recent GST cut as the source of all fiscal worries.

    Nearly every government sets a new spending record simply by virtue of the inflation and population growth factors already mentioned. Add to that the practical political difficulty of cutting spending and the tendency of bureaucratic organizations to grow and extend. The difference in pre- and post-cut GST revenues is not enough to restore balance alone.

    The other, apparently forgotten revenue cut, could also be reversed – the 2001 income tax cuts. Then restrain spending growth to price inflation + population growth, and cut some of the spending handouts. If the federal government had in fact held year-over-year spending growth to the magic 2% number since the net budget was first balanced in 97/98 and all other things remaining the same (an impractical and unlikely assumption) the debt would have passed away entirely by now or be very close to zero. More than one government bears responsibility for the current debt/deficit; what we need is better fiscal management and less finger pointing.

    • I'd point out that sucking $80 billion out of the economy a year for debt repayment would be a drag on th economy, much like the deficit stimulates. Nevermind the conservatives' apoplexy at the overtaxation.

  12. Actually, Kevin Paige went on The Agenda and told Steve Paikin the GST cut did not create a structural deficit.

    • Yeah, the government really doesn't need that 15 billion dollars a year the GST cut removed from the federal budget. Do you have a link for this Paige quote so we know the context?

  13. The truly scary part of Harper's structural deficit has not even been considered yet.

    Harper is adding an additional $200 billion to the DEBT over that period. With no signs of any kind of plan to eliminate the deficit at all, that will continue to GROW.

    Which of course is very bad. But what makes Harper's fiscal management completely disastrous and devastating is the inflation and rising interest rates that is inevitable. This historic and massive increase in deficit spending and debt accumulation is barely sustainable right now at unprecedentedly LOW interest rates.

    Even a modest increases in rates back to historical norms would make Harper's deficit and debt increases severely punishing very quickly. But many are predicting a boomerang on the inflation that goes even higher.

    Maybe a good time to invest if you are one of the lucky ones with the money. Not a good time to be in debt or to be increasing your debt load.

  14. Touche Wherry.

    Either Ignatieff was very prescient, or Page (and Ignatieff) are wrong. In my view the latter, but kudos for following this up as the fiscals unfold.

  15. In one interview Page makes both a strong case for what his office ought to be achieving and gives more evidence that he should not be in charge of that office. The Conservatives have made a strong case that no structural deficit will arise from their fiscal policy. This became an important cornerstone of their political agenda, when Ignatieff stated that tax increases were preferable to burdening future generations with a structural deficit. There is no question that Page should be getting the fiscal facts out in the public. If he had simply stopped there his job would be done. The Conservatives could either 1) refute his claim, 2) also propose an increased tax or 3) indicated where spending cuts would be made. In any case, Page could have brought the Liberals and Conservatives closer to discussing the future fiscal policy of the country.

    Then Page continues and demonstrates both his publicity seeking instinct and his inflated view of his station. In proposing a rise in the GST he is advocating a policy. The vague statement that the GST rise is "least painful" in his view raises the issue: least painful to whom? Many people (not me) believe the harmonized GST will be a disaster for Ontario. Some believe the gun registry and other such programs should be dumped before taxes are raised. Others believe the richest pay too little, still others believe the rich pay too much. Hell, my former Premier Mike Harris would say to get more money LOWER income taxes and the magic of Reganomics will get you more money. The point is that tax policy decisions are a balance between many interests and outside of Page's expertise and mandate. The Office of the Parlimentary Budget Officer is very important and should receive both an increased mandate (to explicitly make it their role to provide fiscal facts to the public) and increased resources to carry out that mandate. First however Page should be fired and someone who respects that their job is to inform parliment and and the public not advocate policy directions.

  16. Of course, the economists who hated the GST cut, now run up to the mic to advise increasing the GST. Iggy should take the advice of comments above to build his campaign around a GST increase. The resulting Conservative majority is sorely needed and the govt could get down to work to fixing the budget after the economic downtown.