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Sound economic planning is no 30-day exercise

By Adam Taylor
web posted October 13, 2008

Amidst opposition cries that the incumbent government has no plan to deal with the economy, the Conservative Party released a platform in the dying days of the campaign. It includes modest spending and tax relief measures, but nothing too flashy or too risky over the next few years.

However, their platform cannot be looked at as their sole "plan" to deal with any economic downturn. After all, the Conservative Party has been in government for nearly three years and has a record.

First off, the books are balanced and have been since 1997-98. In fact, over the past decade the total accumulated surplus exceeds $100-billion. But such largesse swelling in the public treasury was not a sign of strong fiscal management but rather an indication government is taking too much money from taxpayers. In September 2007, the ministry of finance announced the surplus for fiscal 2006-07 was a whopping $14-billion. It prompted the Conservative government to act.

In October 2007, Finance Minister Jim Flaherty turned the traditional fall Economic and Fiscal Update into a full-blown mini-budget by introducing personal and business income tax reductions and a lower GST.

The basic personal exemption - or the amount a person can earn before they pay income tax - was increased to $9,600 from $8,929 and the lowest income tax bracket was restored to 15 per cent (after the Conservatives raised it to 15.5 per cent in their first budget). Both measures applied retroactively to January 1, 2007. The personal income tax reductions alone put $239 back into the average person's pocket and returned $478 to the average two-earner household. Families with children have fared even better with the various new credits, exemptions and payments giving over $1,000 back to the average two-earner family with children.

The now 5% GST returns $300 to $400 annually to the typical household and puts $10-billion back in the pockets of Canadian consumers.

And the reduced business taxes improved Canada's competitive position internationally. At the time, it was criticized by some opposition parties as being a gift to businesses, but in hindsight there is little doubt more manufacturing job losses would have been realized had the government not acted to reduce the costs to businesses and help our country become more competitive internationally.

Budget 2008 also took steps to encourage people to save, another key to weathering tough times. The budget created a Tax Free Savings Account which allows Canadians to invest after-tax dollars while shielding from taxes any investment gains from interest, dividends or capital gains.

On the spending side, Budget 2008 pledged to only increase spending this year by 3.4 per cent. Why? According to the Budget: while "the fundamentals underpinning the Canadian economy remain strong - the outlook remains uncertain, given growing concerns about a larger-than-expected slowdown in the U.S. and uncertainty about the duration and impact of ongoing financial market turbulence."

The Conservative Party platform continues on this guarded path. Over four years, there's $2-billion in new spending and $6-billion in tax relief including a welcome diesel tax cut. Assuming the plan is rolled out evenly, it will "cost" the treasury $2.8-billion in its fourth year. This means spending in the next fiscal year (2009-10) will hold steady at this year's levels, if not lower.

Is the platform perfect? Certainly not. There's more corporate welfare money for the auto and aerospace industries - two sectors that have an insatiable thirst for handouts yet continue to shed jobs. There's also a promise for a new regional development agency for the North and beefed-up regional development budgets in other parts of the country even though these pork-laden agencies are badly flawed.

But what the Conservatives haven't done is offer up large spending hikes to be financed by new taxes -- unlike the other parties in this election.

Nevertheless, the concern with Conservatives isn't their plan but their resolve. A 3.4 per cent spending growth rate in this year's budget is only commendable if it's achieved. Their track record in this regard has not been as laudable. Their first budget called for Ottawa's expenditures to grow by 5.4 per cent in fiscal 2006-07. At the end of that year government receipts had jumped by 7.5 per cent. The 2007 budget plan announced an additional 5.6 per cent spending hike. The real amount in 2007-08 was a 6.9 per cent increase.

The 3.4 per cent target is already in jeopardy as the department of finance reported last month that expenditures grew by 11.1 per cent in June alone and swelled an eye-popping 8.4 per cent in the first three months of the year. Let's hope economic uncertainty strengthens their resolve.

Unlike the other party platforms where the danger lies in them being implemented; the danger in the Tory platform lies in it not being implemented. ESR

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





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