Last week’s federal budget put the economy at the centre of the federal election campaign. The Conservatives trumpeted themselves as prudent stewards, while opposition parties painted them as wasteful spenders. The Gazette asked several economists to figure out which side was correct.
Canada is looking reasonably good coming out of the recession compared to other nations, says Shahidul Islam, economics instructor at Grant MacEwan University, but that’s mostly due to our historically strict bank regulations and high natural resource prices. He gave the government some credit for turning on stimulus spending at the right time, but even if it hadn’t, we’d still be much better off than the U.S.
“Our banks are still on pretty solid ground.”
Canada is in the midst of an economic recovery on paper, says Jim Stanford, economist with the Canadian Auto Workers, but its workers are still in a recession. “We still have over two million Canadians who are effectively unemployed,” he says, and incomes are stagnant. Some 59 per cent of Canadians think we’re still in a recession, he notes, citing a recent Harris-Decima poll. “We still have a lot of hardship out there.”
Opposition parties have repeatedly criticized the Conservatives for wasteful spending and racking up the national debt.
The last government did add billions to the national debt, says Alex Laurin, associate director of research at the C.D. Howe Institute, but much of that was due to stimulus programs. “Other than the stimulus push, what we’ve seen is restraint all over the place.”
Government program spending was projected to grow a mere $7 billion over the next three years, says Stanford, citing last week’s budget — less than one per cent a year, and far below inflation. “The government’s been very, very cautious about any future spending increases.”
But that also means the Conservatives are proposing to essentially freeze program spending without making any cuts, he says. “That’s the part that doesn’t add up for me,” he says. “They are portraying themselves as prudent fiscal managers without telling Canadians how that’s going to occur.”
The Conservatives also proposed a host of small tax measures that would delay our return to budget surpluses by a year, Laurin says. “There’s tons of different new initiatives, and they add up.” With interest rates and health care costs set to rise in the near future, he says it’s critical that we start getting our debt down as soon as possible.
Corporate tax cuts
The Conservatives and opposition parties have also sparred over corporate tax cuts. Those rates have fallen to 16.5 per cent from 19.5 per cent in 2008, and are set to reach 15 per cent next year. The Conservatives say the cuts encourage more investment; opposition parties say they cost Canadians billions in tax dollars, and want them reversed.
Bad idea, Laurin says. “Capital is very mobile,” he says, and reversing the cuts would cost Canada more in investment than it would gain from the higher taxes. It’s more effective to raise sales or personal income taxes instead, he says.
Dropping corporate taxes to 15 per cent from 18 will cost the government $6 billion a year, Stanford says, most of which will benefit big banks and oil companies. Those companies kept making money during the recession and have taxes to pay, he explains. Everyone else has huge losses they can carry forward, and won’t see much benefit. “Frankly, I don’t think those two sectors of the economy need any extra help.”
His research also found no link between lower corporate taxes and higher investment. Canada saw no change in capital investment as a share of GDP between 2000 and today despite a 13-point drop in its corporate tax rate, he notes. “I don’t think you get much bang for the buck.”
The Gazette will be polling experts on party platforms throughout the election. Got an issue you want them to look into? Email firstname.lastname@example.org with your suggestions.