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Fiscal discipline and Liberal DNA

By Adam Taylor
web posted September 29, 2008

In an election campaign where our economic future is increasingly shaping up to be the ballot question, it is not only important, but indeed a responsibility, that each party cost their platform. To their credit, the Liberals did just that recently by releasing Richer, Fairer, Greener: An Action Plan for the 21st Century. Let's consider what the Grits have offered.

The plan's whole layout is rather unorthodox. Rather than present year-by-year numbers as per government budgets and annual public accounts, the Liberal platform offers an accumulated four-year projection of how a majority Liberal government would introduce new taxes, cut existing taxes, and spend billions on a wide array of people, projects, and programs all the while balancing the books.

Over four years a Liberal government would collect $1.07-trillion in taxes and spend $1.05-trillion, leaving a surplus of slightly less than $20-billion. But the entire plan hinges on one big assumption. Their projections assume annual revenue growth of 4.5 per cent for each of the next four years. That's higher than what the department of finance presently projects and likely doesn't take into account the adverse impact of events south of the 49th.

Consider, for example, the impact if their growth projections are off by a single percentage point. A still optimistic 3.5 percent annual growth in revenues creates a shortfall of $60-billion. Subtract their platform's allowance of a $20-billion "cushion" and suddenly there's a $40-billion hole in the Liberal plan.

Would a Stéphane Dion government post $10-billion annual deficits to fund their ambitious spending agenda under this scenario?

Dion says no. He has committed repeatedly during the campaign to run balanced budgets.

Would a Stéphane Dion government raise taxes to the tune of $10-billion per year to fund any shortfalls in his ambitious spending agenda?

Again, Dion says no. But on this front it should be noted that Mr. Dion has also repeatedly claimed that his Party's central plank in this campaign - the Green Shift - would not impose new burdens on taxpayers. Clearly this is false.

The Liberal's Green Shift introduces a $15-billion annual carbon tax on traditional energy sources. That would be offset, in part, by lower personal and business income taxes to the tune of $9.5-billion. However, the remainder is new spending with $4.5-billion going to low income families and $1-billion toward research and development. In other words, for every $3 in new taxes only $2 will be coming back in relief. The other $1 is new spending.

There is, of course, one final option for Mr. Dion should his plan meet a shortfall: cut spending. On this point Mr. Dion says "fiscal discipline is now part of the Liberal DNA," harkening back to 1997-98 when former Liberal Prime Minister Jean Chrétien balanced the books for the first time in nearly thirty years.

How did they do it? They cut spending. Between 1993 and 1996, program spending decreased by nearly 10 percent. Cuts were made across the board. And it was explained to Canadians as tough but necessary medicine to nurse the country back to fiscal health after decades of Liberal and Conservative recklessness.

Is this something Mr. Dion would do to keep the country's books balanced? Consider the platform - without questioning any of its revenue assumptions - says it will reallocate $12-billion in current spending and find a further $5-billion in proverbial "efficiency" savings" as part of their plan to balance the budget. Yet, not a single penny under this category of "expenditure discipline" is detailed. If Mr. Dion can't detail committed-to spending restraint in an arguably rosy platform document, what confidence is there they could do it in the event of a not-so-unlikely economic downturn?

The Liberals have not put out a taxpayer-friendly platform; but it is a platform nonetheless and they've had the courage to release a document for voters and taxpayers to consider. Now it's time for the Conservatives to step up to the plate. ESR

Adam Taylor is National Research Director and Acting Federal Director of the Canadian Taxpayers Federation.

 

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