The What-Me-Worry 2018 Federal Budget

Hey Canada, things are going great!  Unemployment is at 5.8%,a 4-decade low, we have the top growth rate of the G-7 nations since the second quarter of 2016 at 3.2%, and federal revenue growth has been stronger than expected.  Oh, but we still have deficits planned for the next decade or so?  We know that Liberal and NDP voters don’t care, so spending an extra $12-18billion per year with no end in sight allows the feds to pursue initiatives we all care deeply about – gender equality, reconciliation, and other promises from the 2015 Liberal election platform.  Well, not so much for all those infrastructure spending plans, we can’t seem to get that money out the door – but no matter, with all the growth in other sectors we don’t need all those new roads, bridges or water treatment plants in any case!

Yes, I must admit that times are good.  This is not the first time that money has been sprinkled around in all directions during prosperous times.  The Manley budgets of the early 2000s replaced the disciplined spending control imposed by Paul Martin with funding that could best be deemed as “madly off in all directions” simply because they had to keep the spending up to keep the surpluses left over from Paul Martin’s hard work from ballooning to the $20 billion level.  Indeed, $20 billion in annual surpluses was possible 15 years ago, in the same way that a balanced budget could have been achieved with a few astute choices in Morneau’s current budget.  Let’s be honest – a small $18 billion deficit is not going to stimulate a $2 trillion economy in any meaningful way, it is more of a rounding error.  The Liberals have repeatedly failed to look at over $150 billion in annual tax expenditures (tax giveaways, deductions, etc.) nor have they looked at trimming programs known as “perennial sun-setters” that have no purpose anymore.  Had they tried, they could have done everything they wanted to in this budget AND come up with a balanced budget, and really silenced their critics.  The lack of willingness to undertake a comprehensive program and policy review when times are good is either irresponsible, indicative of laziness, or simply since voters don’t care, why upset anyone whose favourite little program might get cancelled?  Better to add new spending than offend some special interest groups who would emerge as fiscal losers under that exercise.

Tax rates are being lowered in the US and this budget gives no indication whatsoever that the federal government is concerned that investment may be diverted to the US and away from Canada as a result.  Their solution is to impose a new, punitive test on Canadian individuals with companies in the US by revising the rules for Controlled Foreign Affiliates that would push more profits from that firm’s activities into the Foreign Accrual Property Income (FAPI) to be declared in Canada by the taxpayer.  Rather than making the Canadian fiscal regime more competitive, they have created further disincentive for wealth creation that can only weaken Canada’s entrepreneurial class in the long run.

Getting more women and minorities into the workforce is a great idea, but Canada still has a nagging problem with Long-Term Unemployment that has not significantly improved since the Great Recession of 2008.  This is according to the graph extracted from the government’s own budget document in the annexes – all the interesting information is always in the annexes, you know – along with figures showing that five provinces still lag in employment potential.  Three of those provinces mostly vote Tory, so no matter, then.  To avoid wage-push inflation, the government must grow the pool of trained, capable workers that meet the needs of Canadian business, but there is little in this budget for those whose skills no longer fit with the Canada of today, and certainly not tomorrow.

What if NAFTA fails?  We have a small contingency for that.  What if we have a massive shock to our economy due to a regional war overseas or other major event that triggers a recession?  What if interest rates rise and our debt becomes much more expensive to carry?  Please, don’t crowd your mind with such negative thoughts.  Any of these negative thoughts can turn a $18 billion deficit into a $50 billion deficit in a few quarters of economic performance.  Even John Maynard Keynes said that you should run surpluses in good times to prepare for the bad times – in Canada, it seems, we only let the good times roll.