Craig Alexander, (left) the deputy chief economist for the Toronto-Dominion Bank, takes a look at how the new government might affect federal fiscal policy. He says, for example, that he does not expect the Conservatives to move forward with their campaign promise to introduce a deferral on capital gains taxes, believing that initiative to be too complex and too costly for what is a precariously positioned minority government.
In his brief, Alexander asks,
“…it is our hope that attention will be shifted to addressing Canada’s ailing productivity performance. The country needs a coherent and focused strategy to shift the economic culture away from consumption and borrowing and towards saving and investment. The challenge is that there does not appear to be much fiscal room to deliver much in the way of new policies. However, this issue is pressing and cannot be ignored. At a minimum, the new government is encouraged to do a comprehensive review of its existing programs and policies, with an eye to finding savings and creating opportunities to introduce productivity-enhancing initiatives. “
Alexander does a nice job of summarizing the spending and tax relief plans as presented by the Conservatives during the election campaign. Using figures released by the Conservatives to do his calculations, Alexander says that Conservatives spending promises would total just over $30–billion over the five years, nearly one-third of which can be chalked up to the Conservative “choice-in-child-care” grant.
Alexander calculates that Conservative tax relief plans, as promised by the Conservative but excluding the cost of the capital gains deferral plans, would reduce federal revenues by about $44–billion over five years. The biggest chunk of that is the GST cut — that will trim Ottawa’s revenues by more than $32–billion over five years.
Will the combination of increased spending and reduced revenue put Ottawa into defecit? Alexander does not think so, saying such fears are, in his view, “overblown.”
He goes on to conclude:
“The basic conclusion is that the Conservative government has the scope to implement the vast majority of its election platform and at the same time continue to run balanced budgets and pay down debt at a gradual pace…Having said that, the government has little fiscal flexibility to introduce significant new spending or tax relief. Accordingly, Canada’s punitively high marginal effective personal income tax burden will continue to constrain the ability of households to save and to act as a barrier for many low income Canadians trying to leave government income-support programs in order to enter the labour force. ”