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The government has deliberately chosen the fiscal equivalent of the ‘long-COVID’
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In reading a federal budget 724 pages long — the budget having ballooned almost as much as the deficit — I skipped the main text, which is unbecomingly larded with self-praise, and went right to the annexes, which for the most part remain reasonably factual.
Annex 1 is the most useful. It gives the “Details of Economic and Fiscal Projections.” The economic news is better than in last fall’s economic statement, issued just 20 weeks ago. The statement forecast 2020 “growth” at -5.4 per cent. In fact, it was -4.6 per cent, almost a full point better. The statement forecast 2021 growth at 7.0 per cent. The current forecast is an even more robust 9.3 per cent. So, good news.
The fiscal news is good, too. Almost astonishingly good. A do-nothing budget (you listening, Mr. O’Toole?) would have the deficit falling from $346.4 billion in the fiscal year that ended March 31st, to $105.4 billion this fiscal year, to just $31.4 billion in fiscal 2022-23. I say “just” because in this louche new Weimar world of “spend everything you can and then spend some more,” $31.4 billion is hardly anything.
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As a percentage of GDP, the deficit would fall from 15.7 per cent last fiscal year to just 1.3 per cent next. In fiscal 2019-20 we were at 1.2 per cent of GDP (if you don’t count actuarial losses associated with government pension plans). At the time, if you can remember olden, pre-COVID days, many of us thought that was too high a deficit, given that the economy was doing well and it’s best to actually balance budgets during economic upswings. But, too high or not, it would be great to get back to that kind of normal political debate.
And the numbers say that without this budget, it would be well within reach. That’s worth emphasizing. Balance the budget? Even the Conservatives, deathly afraid of being tagged with favouring “austerity,” say it would take the better part of a decade. But, no, the Department of Finance’s own numbers say we could be back within ideological spitting distance as early as next fiscal year — with no dismantling of the federal government required.
That would be “Build Back Normal,” of course, and very un-woke, so, even though its own official forecasts are more upbeat than last fall, the government doesn’t opt for the $70 billion of “stimulus” spending it pencilled in as “$70 to $100 billion” last fall, it goes for policy innovations that amount to fully $101.4 billion of extra deficit over the next three years — which means we don’t get the deficit down to 1.3 per cent of GDP until fiscal year 2024-5, while in fiscal 2025-6 it’s still $30 billion a year — assuming, unrealistically, that other spending priorities haven’t imposed themselves by then.
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The fiscal effects of COVID could be over reasonably quickly. But the government has deliberately chosen the fiscal equivalent of the “long-COVID” that is afflicting many COVID victims. It’s dragging out the effects — with the difference that it’s volunteering for the long version, which no one in the real world does.
In fact, the numbers are even worse than they appear in black and white. They’re calculated in terms of the accrual accounting the government uses for budgeting. But if you look at them on a cash basis (see Table A1.12) the three-year deficit add-on is not $101.4 billion but $149.4 billion. That’s one reason the government’s cash needs will be a cool $523 billion this fiscal year.
Speaking of cool, the new tax break for solar-heated swimming pools has got to be the coolest item in the budget. (Pools are intrinsically cool, though heated ones, um, less so.) Unfortunately, this policy item is not costed. And it’s not quite a new tax break: rather, it’s removal of an exclusion from a previous tax break for solar- and bio-powered doo-dads. Strange, though, that in a budget that imposes new sales taxes on $100,000-and-up cars and planes and $250,000-and-up boats, classifying them as “luxury” items only purchased by the notorious top 1 per cent of income earners, solar-heated swimming pools get a tax break. The internal debate between the government’s Greens and its Jacobins must have generated its own heat. (As for me, I am going nowhere near any plane that costs only $100,000.)
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Solar-heated pools exemplify the problem with not sticking to simple climate policies, such as “impose a carbon tax and then retire from the field”: you end up having to make fine distinctions over a wide range of activities. As former Soviet bureaucrats could tell you, it goes with the central-planning territory.
In terms of taxes, however, “over-threaten and under-deliver” summarizes this budget. There was lots of talk about wealth taxes and worse in the lead-up to the budget, and the document does include several passages about imminent OECD measures to catch international and domestic tax fugitives. But the biggest tax measures are $3.4 billion over five years in new revenues from taxing digital commerce and $5.3 billion over the same period from limitations on “excessive interest deductions.”
You’d think with COVID rampaging and vaccines rolling out slowly, now is not the best time for an election. The absence of tax measures in this budget suggests one hasn’t been ruled out yet.
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