I'm no finance major, but this sounded pretty reasonable to me.
Fiscal responsibilities
How the next government should respond to the federal deficit
No matter which party (or parties) forms the government after the federal election scheduled for May 2, the new government will face a very large deficit. Whether it is led by Liberal leader Michael Ignatieff or, more likely, Conservative leader and current prime minister Stephen Harper, it will need to make deficit reduction a priority to keep interest payments from throttling federal spending as they did in the late 1980s and early 1990s. However, the burden of reduction efforts cannot be placed entirely on the shoulders of low-and middle-income families. Instead, the new government should work to find a fair way for all Canadians to share the burden.
Since deficits arise when the federal government takes in less money than it plans to spend, it has a relatively limited set of tools to reduce the deficit. It can attempt to increase its revenue directly by increasing taxes and other fees, or it can act indirectly to spur economic growth and thereby bring in more tax revenue. The government can also cut spending, either directly by cutting programs and transfers to provincial governments, or it can act indirectly to reduce the number of Canadians who rely on its programs, such as by curbing unemployment and thereby reducing the number of Employment Insurance recipients.
The Harper government has chosen to use two of these tools for its current deficit reduction efforts. First, it is cutting corporate taxes, which it hopes will spur economic growth, and in turn, increase its revenue. Unfortunately, corporate tax cuts historically seem to have little effect on growth, both in Canada and elsewhere. Moreover, Canada’s tax rates are among the lowest in the world, excluding tax havens. Second, it is also cutting public spending on inefficient and unnecessary programs, through a strategic review of government programs. This process is sensible and effective, but cannot deliver very significant savings.
The Liberals are right to suggest delaying corporate tax cuts until the deficit is significantly smaller or preferably eliminated. However, unless they can explain how they plan to replace the lost revenue or cut enough spending to offset the loss, then they should delay the cuts indefinitely. Perhaps the New Democrats would make a freeze on corporate tax cuts a condition of joining a coalition government with the Liberals. Both the Liberals and the New Democrats should endorse a new round of strategic reviews, but they should focus more squarely on areas where there has been significant growth in the past decade, notably the defence budget.
Indeed, not only should the new government use the deficit-cutting tools used by the Harper government differently, but it should also consider deploying a wider range of tools. This includes tax increases that would see wealthy Canadians and large Canadian corporations pay their fair share. That way, the new government could plug the budgetary hole created by the Harper government’s two per cent cut to the GST. Moreover, the new government should not only focus on piecemeal cuts in inefficient or unnecessary areas identified by strategic reviews, but on major new spending such as the construction of new prisons, and the purchase of F-35 stealth fighters.
That way, the new government could avoid having to make major cuts to provincial transfers when they are due to be renegotiated in 2014. The transfers, which help fund education, health, and social care, make up a large portion of the federal budget. Some cuts will undoubtedly be necessary, but focusing on cutting other areas of federal spending while making a concerted effort to increase federal revenues first will help make them more modest and less painful.
It is these cuts, which many expect the Harper government to make if it is still in power in 2014, that would do harm to Canadian families. By putting pressure on provincial governments to cut services, the cuts would exacerbate overcrowding in classrooms, lengthen wait times for crucial surgeries, and weaken the social safety net which keeps tens of thousands of Canadians from falling into abject poverty every year. No matter one’s partisan affiliations, it is clear that these cuts would undermine the public services that all Canadians rely on, either directly or indirectly.
While growing federal transfers to the provinces are part of why Canada has a deficit, slashing these transfers cannot be the first step of deficit reduction because of the effects these cuts would have for Canadian families. Rising education, health, and social care spending is certainly concerning, but the government cannot respond with budget-slashing that will have devastating consequences. A measured approach, which focuses first and foremost on increasing revenue and reducing other federal spending would be far better for all Canadians. We should expect no less from Canada’s next government, no matter who leads it.
http://thevarsity.ca/articles/45374
Fiscal responsibilities
How the next government should respond to the federal deficit
No matter which party (or parties) forms the government after the federal election scheduled for May 2, the new government will face a very large deficit. Whether it is led by Liberal leader Michael Ignatieff or, more likely, Conservative leader and current prime minister Stephen Harper, it will need to make deficit reduction a priority to keep interest payments from throttling federal spending as they did in the late 1980s and early 1990s. However, the burden of reduction efforts cannot be placed entirely on the shoulders of low-and middle-income families. Instead, the new government should work to find a fair way for all Canadians to share the burden.
Since deficits arise when the federal government takes in less money than it plans to spend, it has a relatively limited set of tools to reduce the deficit. It can attempt to increase its revenue directly by increasing taxes and other fees, or it can act indirectly to spur economic growth and thereby bring in more tax revenue. The government can also cut spending, either directly by cutting programs and transfers to provincial governments, or it can act indirectly to reduce the number of Canadians who rely on its programs, such as by curbing unemployment and thereby reducing the number of Employment Insurance recipients.
The Harper government has chosen to use two of these tools for its current deficit reduction efforts. First, it is cutting corporate taxes, which it hopes will spur economic growth, and in turn, increase its revenue. Unfortunately, corporate tax cuts historically seem to have little effect on growth, both in Canada and elsewhere. Moreover, Canada’s tax rates are among the lowest in the world, excluding tax havens. Second, it is also cutting public spending on inefficient and unnecessary programs, through a strategic review of government programs. This process is sensible and effective, but cannot deliver very significant savings.
The Liberals are right to suggest delaying corporate tax cuts until the deficit is significantly smaller or preferably eliminated. However, unless they can explain how they plan to replace the lost revenue or cut enough spending to offset the loss, then they should delay the cuts indefinitely. Perhaps the New Democrats would make a freeze on corporate tax cuts a condition of joining a coalition government with the Liberals. Both the Liberals and the New Democrats should endorse a new round of strategic reviews, but they should focus more squarely on areas where there has been significant growth in the past decade, notably the defence budget.
Indeed, not only should the new government use the deficit-cutting tools used by the Harper government differently, but it should also consider deploying a wider range of tools. This includes tax increases that would see wealthy Canadians and large Canadian corporations pay their fair share. That way, the new government could plug the budgetary hole created by the Harper government’s two per cent cut to the GST. Moreover, the new government should not only focus on piecemeal cuts in inefficient or unnecessary areas identified by strategic reviews, but on major new spending such as the construction of new prisons, and the purchase of F-35 stealth fighters.
That way, the new government could avoid having to make major cuts to provincial transfers when they are due to be renegotiated in 2014. The transfers, which help fund education, health, and social care, make up a large portion of the federal budget. Some cuts will undoubtedly be necessary, but focusing on cutting other areas of federal spending while making a concerted effort to increase federal revenues first will help make them more modest and less painful.
It is these cuts, which many expect the Harper government to make if it is still in power in 2014, that would do harm to Canadian families. By putting pressure on provincial governments to cut services, the cuts would exacerbate overcrowding in classrooms, lengthen wait times for crucial surgeries, and weaken the social safety net which keeps tens of thousands of Canadians from falling into abject poverty every year. No matter one’s partisan affiliations, it is clear that these cuts would undermine the public services that all Canadians rely on, either directly or indirectly.
While growing federal transfers to the provinces are part of why Canada has a deficit, slashing these transfers cannot be the first step of deficit reduction because of the effects these cuts would have for Canadian families. Rising education, health, and social care spending is certainly concerning, but the government cannot respond with budget-slashing that will have devastating consequences. A measured approach, which focuses first and foremost on increasing revenue and reducing other federal spending would be far better for all Canadians. We should expect no less from Canada’s next government, no matter who leads it.
http://thevarsity.ca/articles/45374
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