Let’s assume for a moment that a country’s annual budgeting exercise is the equivalent of building a company. You have certain assets at your disposal and, in theory, a pretty good idea of where you want to go them. Maybe you want to build the next Blackberry, or the next General Motors. So you’d invest in the people, the infrastructure and the marketing to do so.
Translating that into how a country operates isn’t straight-forward but for the sake of it let’s say that some country, let’s call this make believe place Theoville (my cat’s name is Theo), decides that it wants to host the world’s most innovative and competitive economy.
To get to that goal, the decision makers in Theoville need to make some choices. Their citizens distrust them, and have a rather negative perspective on government in general. Tax cuts are popular for a number of reasons. However public revenues are already tight owing to gradual reductions in both personal and corporate income taxes, as well as the effect of a stagnating economy and stagnant export volumes.
So as the budget for Theoville is prepared, and as those decision makers think about how to achieve their goal, the rationale for cutting public revenue by a further $4 billion is unlikely to garner support. Except it does. Because those cats in Theoville decide that they’ll introduce income splitting to the tune of $2.2 billion and they’ll double tax free savings at a cost of another $2 billion. But wait. These are smart cats so they’re not going to forget completely about their goal. They allocate $1.33 billion towards research and innovation… over six years. There’s also $750 million towards infrastructure …over two years and with strings and limitations. In both cases, these are rationale investments. However look at the math. That’s a 4:1 ratio (I realize I’m being very simplistic) on short-term benefit vs. long-term investment. And then there’s the issue of small business taxes. Every loves small businesses. So let’s cut their taxes right… despite the fact that most don’t grow, and many provide tax cover for individuals.
As a proud citizen of Theoville, I really don’t see how we’ll achieve our goal with such thinking. Wouldn’t the cats of Theoville realize that building a competitive 21st century economy requires addressing some of the major economic and social challenges the country faces?
The country’s poor innovation record should mean more funding for the organizations that fund and support startups, same for those that support Canadian exporters. Our dropping export levels should cause us to look in the mirror and ask why. Increased funding for international exchange and work abroad opportunities for students and new graduates might help. And staffing our economy with productive labour should mean ensuring that every resident gets the best start he or she can through significant investment in childcare, and an infusion of funds from the federal government to universities and colleges to ensure they remain relevant and accessible.
Unfortunately Theoville is really Canada and the choices described are those contained in this year’s budget. I realize I’m somewhat partisan but believe me I try to be objective. And it’s not all bad. There are good policy choices in there related to accelerated capital allowances, the aforementioned infrastructure spend, increased investment in the Trade Commissioner Service, and so on. However these represent a fraction of the billions being misdirected for short-term political gain rather than into our/my son’s future.
It’s not unexpected but damn is it ever disappointing.
See the full budget here: http://www.budget.gc.ca/2015/docs/plan/budget2015-eng.pdf