An Analysis of the Election Budget

All appearances now seem to indicate that the Harper government will fall as result of the non-confidence motion to be voted on tomorrow. In light of this reality, I decided to take a look at the budget that will undoubtedly play a significant role in the events to come. Being unwilling to read the entirety of the 352 page budget at this time, I contented myself with reading the government’s summary, which can be found here. I did end up looking at the full budget occasionally as well. For those of you who are interested, it can be found here. What follows is a brief commentary on some of the proposals in the budget that I found significant.

To give some context, this budget follows two years of focus on stimulus spending. With plans for stimulus spending now winding down, the government is projecting a $29.6 billion deficit for the upcoming fiscal year, down from $40.5 billion last year. The government developed this budget based on the assertion that Canada has and will continue to experience economic growth that is anomalously high amongst G7 nations. The government asserts that as a result of policies implemented in this budget as well as those resulting from previous budgets, the federal government will return to surplus budgets once again by the 2015-2016 fiscal year. These claims are similar to those made in last year’s budget, and were specifically attacked by Parliamentary Budget Officer Kevin Page as having been unrealistically optimistic.

The budget puts forth a variety of proposals meant to help address various issues surrounding economic growth and job creation. It features 5 central categories of concern: supporting job creation; supporting families and communities; investing in innovation, education and training; preserving Canada’s fiscal advantage; and planning a return to balanced budgets. I will address the plans laid out in each of these categories in this article. This article is in no way comprehensive. Many provisions in the budget have been ignored.

Supporting Job Creation

Under this heading could be found a variety of fairly non-contentious claims including the provision of a minor hiring tax credit for small businesses and the continued support of pilot projects investigating alternative Employment Insurance models.

Planned investment in clean energy development however, was significantly lacking. In a rather comical passage early in the summary the government listed the two following planned investments in succession.

• Providing renewed funding of almost $100 million over two years for research, development and demonstrations of clean energy and energy efficiency.

• Contributing $150 million toward the construction of an all-season road between Inuvik and Tuktoyaktuk that completes the Dempster Highway, connecting Canadians from coast to coast to coast.

The completion of the Dempster Highway may indeed an important project. It just seems odd that development of clean energy – during a period of time when oil prices are expected continue rising – is less of a priority for the Harper government than a highway that, by all appearances, is in the middle of nowhere (my apologies to members of Inuvik region). Truly, clean energy ought to involve a much greater investment on the part of the government if any serious progress is to be made in the area. To provide even more context as to just how little an investment this is as a portion of government funds, consider that the election itself will probably cost about $300 million. The last one cost $288.2 million.

The budget also discusses the permanent continuation of an annual $2 billion investment in the Gas Tax Fund, which provides municipalities with funding for environmentally sustainable infrastructure projects. Though this is a fairly unobjectionable policy, it should not necessarily be looked upon as evidence that the Harper government is treating municipalities well. The budget contains no provisions for extended the period during which stimulus funds can be transferred to municipalities beyond its current March 31^st deadline. As things stand currently, any municipal infrastructure projects not finished before this deadline will receive no federal stimulus money, leaving many municipalities to foot the entire bill for projects they expected only to pay for about a third of. This deadline is completely arbitrary in nature and the government has failed to consider the significant financial stress that will now be placed on many municipalities as a result.

A plan to put $228 million towards repairing bridges in Montreal will likely be well received by citizens there. The city’s ailing bridges rose to notoriety in 2006 when the collapse of an overpass killed 5 people. More recently, concerns have been raised that Montreal’s Champlain Bridge, which carries about 60 million vehicles a year, is at risk of collapsing.

Investment in the agricultural industry is also prominent in the budget, though many familiar with the industry will likely be suspicious of a proposed $50 million investment in a plan supporting “increased commercialization of agricultural innovations”. $100 million will also be invested in improving the Canadian Food Inspection Agency, no doubt a welcome investment to anyone still concerned by 2008’s listeriosis outbreak.

A $60 million commitment to help the forestry industry find “new opportunities abroad” is probably also worthy of some deeper investigation.

Supporting Families and Communities

An additional $300 million investment in the Guaranteed Income Support will provide low income seniors with marginally more significant income supplementation. As noted in one of the CBC articles I linked above, this commitment is financially just about as costly as the election will be.

The proposed elimination of mandatory retirement age for federal employees is one that is long overdue in a free society of the 21^st century.

A tax credit for family caregivers acknowledges the additional economic burden felt by those members of our society looking after dependant relatives.

A Children’s Arts Tax Credit on up to $500 of expenses is both insignificant and likely not fooling anyone into believing the Conservatives actually care about funding the arts.

The introduction of a tax credit for volunteer firefighters is an excellent idea and especially difficult to oppose when one considers that 90% of Canada’s fire departments exist on a volunteer basis. However, it is worth noting that Michael Ignatieff was the first federal leader to call for such a provision almost a year ago.

A plan to offer significant federal student loan forgiveness (of up to $40000) to health care workers willing to work in rural areas is an interesting idea for improving the sustainability of health care in those areas. Attempts to match this program at a provincial level should be made by provincial governments.

An additional $60 million in funding to the CBC is a welcome addition. This may help slightly allay the concerns of some that the Harper government intends to fundamentally undermine the public broadcaster.

A more significant environmental commitment could be found under this category, with $870 million pledged for Canada’s Clean Air Agenda. However, a significant portion of these funds falls under improving and supporting vaguely defined regulatory capabilities. Until the government actually adopts effective and enforceable regulations for addressing climate change, it would be wise to be sceptical as to the impact of this spending. $400 million was also allocated for the ecoENERGY Retrofit program, a program that incentivized Canadians to improve the energy efficiency of their homes.

Also notable was a $27 million increase in funding to Environment Canada aimed at improving weather services. Presumably, this will help the agency deal with the increasing difficulty they will face in predicting weather patterns as the climate is slowly altered through the process of human-caused climate change that the Harper government seeks to ignore.

Interestingly, under the subheading of Public Safety, Security and Justice, the budget outline a plan to spend “$20.9 million to continue to waive firearms licence renewal fees for all classes of firearms”. For some context, the budget includes a mere $30 million dollar increase in funding for youth crime prevention programs.

Investing in Innovation, Education and Training

The budget commits $60 million dollars to promoting student enrolment in fields relating to the digital economy, as well as a $100 million commitment to the Canadian Media Fund for the creation of digital content relating to Canadian media. This is hardly objectionable given the opportunity this field to continue to provide future opportunities for investment and job creation.

Canadian universities were excited by the hundreds of millions of dollars promised to finance research at post-secondary institutions.

$4 million was also allocated for the construction of a cyclotron in Thunder Bay, a machine which apparently has the capability to produce medical isotopes, an important priority given the difficulty Canada has had recently in reliably fulfilling its role as the world’s largest source of the isotopes, which are heavily relied upon for diagnosing some cancers throughout the world.

Another group of measures valued at around $100 million dollars focuses on development and improved commercialization of various technologies, including $40 million to be invested in “clean technology products”.

I personally welcome the addition of a $34 million investment in the Canada Student Loans and Grants program, though more would always be welcome.

Proposed tax relief for occupational, trade and professional examination fees is a decent proposal for slightly increasing accessibility to these careers.

I was on the whole disappointed with the limited scope of the proposals in this section. To truly build a knowledge economy the government needs to focus on increased access to post-secondary education by doing more than just offering a slightly better student loan program. Further, it is imperative that Canada attempt to adjust its approach to primary and secondary education. The continued use of a model of education rooted in the dogmas of the industrial revolution simply will not allow for the creation of a 21^st century knowledge economy. Though education lies within the purview of provincial governments, the federal government could provide a program that finances pilot program initiatives undertaken by provinces that attempt to increase graduation rates and post-secondary enrolment rates (ie. charter schools testing a variety of alternative educational approaches).

Of additional concern was the limited investment in retraining programs for workers. Many workers lost their jobs during the recession, and many of them worked in unskilled industries, or industries that employed very specific subsets of skills. That these individuals are more likely to come from low income backgrounds compounds their problem, especially in light of the fact that almost all of Canada’s job recovery since the recession began has taken the form of high income jobs. Providing those individuals who now find themselves unable to re-enter the workforce with the opportunity to educate themselves in a new discipline and will allow them the chance to earn an income and prevent them from becoming a burden on the welfare system.

Preserving Canada’s Fiscal Advantage

This section was highly ambiguous in the summary so I turned to the actual budget document to find out more.

The section begins with some discussion of how much better off Canada is as a result of Conservative policy. The Conservatives claim they have reduced the debt-to-GDP ratio to its lowest level in 30 years, essentially trying to take credit for Paul Martin’s years of debt slashing, both as Finance Minister and later, Prime Minister.

Next, the reader is reminded – as has been said at every possible chance since the beginning of the budget – that the IMF believes Canada’s economy is stronger than any other G7 nation.

Aside from that, a few bullets points follow about the benefits of reducing debt.

Throughout the section, highly ambiguous phrases are used to highlight how the government will somehow keep the economy working well. Apparently the government will use “strong fiscal management” and not, in fact, mediocre fiscal management, as some analysts had expected.

Needless to say this was the most useless section of the budget. It contains no concrete policy plans of any kind. If anything, it ought to serve as a preview into what can be expected of Tory rhetoric on the campaign trail.

Plan for Returning to Balanced Budgets

Apparently, the return to balanced budgets involves neither raising taxes nor cutting transfer payments. In a classic political move, Canadians are instead expected to believe that debt will be reduced (as a percentage of GDP) through the fantastic economic growth Canada will continue to experience, closing tax loopholes and by eliminating inefficiencies in government.

In other words, a return to balanced budgets is entirely dependent on GDP growth and a relative lack of spending increases. No one actually believes that government will be effective in closing loopholes in the tax code or making itself more efficient. In particular, the culture of bureaucratic waste that pervades government cannot be changed within any short span of time. David Cameron has predicated much of his government’s plan for a return to balanced budgets in Britain on this same principle and has run into significant troubles as a result.

 

No mentioned in the budget, but relevant in omission is the issue of corporate tax cuts. The Conservative budget, by omission, would result in the lowering of the corporate tax rate even further from its current level of 16.5% to 15%, a plan passed with an earlier budget. Not only does this not make any sense from a fiscal policy perspective (corporate tax rates should’ve reached their lowest point in the throes of the recession) it seriously undermines the government’s claim that they will return the economy to balanced budgets. Though they may claim that corporate tax cuts allow for corporations to create more jobs, there is no evidence for this oft cited phenomenon outside of abstract economic theory. Corporate tax cuts have never been shown to directly result in large numbers of companies increasing their workforce. The fact is that companies expand their workforces based on whether or not they feel they can serve a larger market. Most of the time, additional profits a corporation receives will be reinvested in the company’s productive capital in an attempt to gai an edge over competitors in terms of production quality or efficiency. This truth means that corporate tax cuts are not often a good source of direct job creation.

Having looking at a variety of aspects in the budget it is evident that not all the proposals in it are at all objectionable. Some might even be considered fantastic ideas, and it is a shame that their potential implementation must now be delayed. However, the failures of the budget are significant and must be addressed. It seems likely that many of the best provisions in the budget (ie. tax credits for volunteer firefighters) will be present under any government that forms out of the upcoming election. Ultimately, it can be reasonably hoped that this election will result in an improved version of this budget.

If anyone has any comments about the budget or some of my analysis, don’t hesitate to speak up! Leave a comment!

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