No wonder Stephen Harper is so pleased with the Liberal budget

February 24, 2005

The great thing about budgets is that the numbers cut right through the spin and reveal the real priorities of governments. The 2005 Federal Budget is no exception.

The Minister of Finance’s budget speech went on for page after page setting out the broad themes under which the budget’s initiatives will be spun. So we have sections on health care and equalization; cities and communities; children; seniors; caregivers and people with disabilities; aboriginals; productivity; green initiatives; and international affairs. In the 19 pages of the speech, one and one half pages are devoted to tax cuts and not one mention is made of any plan to divert resources into debt retirement.

Yet when you look at the details, it turns out that in 2009-10, the last year of the government’s projection period, tax cuts introduced in this budget will account $6.6 billion out of a net total of $14.4 billion in new initiatives. That’s 47% of the new initiatives in the budget accounted for by tax cuts.

And buried in the fiscal forecast numbers, you find that the government is again budgeting for a reserve of $3 billion in every year of its forecast period. If the experience of the past few years is any indication, that $3 billion and more will end up being directed towards reducing debt.

So the real priority in the budget, when you cut through the spin, is reducing the capacity of the Federal Government to raise revenue. In other words, for the second time in five years, a Liberal Federal Government hasn’t been able to think of anything better to do with a substantial chunk of the revenue it raises than to give it back. No wonder Stephen Harper is so pleased.

The details of the tax cuts are even more revealing. By the end of the planning period, $100 million a year will be gone from Federal Government revenues to pay for a cut in excise taxes on jewelry. I wonder how that stacks up on Canadians’ list of priorities.

By 2009-10, $180 million a year will be gone, courtesy of the proposed increase in RRSP limits to $22,000 a year. What’s interesting about that is that, to benefit at all from this increase, you have to have an income in excess of $100,000 a year. That’s a benefit for 648,040 Canadian taxpayers out of over 15 million – the highest-income 4% of the Canadians who show up on the Federal tax rolls.

In corporate taxes, the Federal Government has evidently panicked at seeing Canada’s lead in the race to the bottom in corporate tax rates eroding. According to the figures in the budget, without this decisive action by our Federal Government, our lead in this dubious race would have shrunk from 4.6 percentage points to 1.4 percentage points by 2010.  Thanks to the 2005 Federal Budget, our lead in the race will be virtually restored by 2010, at 4.5 percentage points. I don’t know about anyone else, but I’m relieved. And the changes will only cost us $2.6 billion a year by 2010. Try getting a deal like that anywhere else!

The only tax cut that delivers any real benefit to the average Canadian is the increase in the basic income tax credit, which will increase from the current $8,012 to $10,000 by 2009. What the budget didn’t acknowledge is that, with inflation at 2.5%, indexing would have taken the credit to $9,000 anyway. So the actual increase in the budget – phased in over five years – is $1,000, a change that will reduce taxes for most Canadians by $160. The lowest-income taxpayers won’t save anything.

Even if there weren’t anything better to do with the money, the priorities within the tax package look a lot more like the last Conservative platform than the last Liberal platform. But the list of critical issues simply ignored by the budget puts the lie to the implicit assumption that there’s no need for the revenue that’s being given up.

The word “poverty” appears in the budget speech only in the context of international aid. It does not appear at all in the government’s summary “Budget in Brief” document.

The word “homeless” does not appear at all in the budget speech, the Budget in Brief or in the 410 page technical budget document. The word “housing” finds its way into the speech in reference to extending current programs that are set to expire.

Despite widespread concern about the fact that Employment Insurance only covers about 30% of the unemployed, EI figures into the budget only in the context of reducing premiums. Postsecondary education is virtually ignored, with additional funding limited to research.

The commitment to initiatives that made it into the budget is also disappointing, to say the least. The annual commitment to the government’s signature childcare initiative is $1.2 billion – less than one half of the annual allocation in this budget to corporate tax cuts. The fully phased-in annual allocation for climate change programs is barely one third the allocation for corporate tax cuts. The 5 cents per litre of the gas tax going to cities and communities falls $700 million short of the 2009-10 cost of the corporate tax cut.

And despite the clear signal from Canadians’ overwhelming response to the Tsunami crisis that this country is prepared to meet its international aid commitments, the additional funding provided in this budget will take Canada only 1/10 of 1% closer to meeting our international 0.7% of GDP commitment by 2009-10.

None of this is to suggest that corporate tax cuts might not be a good idea if we really couldn’t think of anything better to do with the money. But at a time when it is clear that when you look at public services in Canada as a whole, regardless of which level of government delivers them, we aren’t raising enough revenue in Canada to pay for the services we need, cutting taxes isn’t just a reflection of misplaced priorities, it is irresponsible.

Hugh Mackenzie is a CCPA Research Associate and Co-chair of the Ontario Alternative Budget.