Finance Minister Bill Morneau, as he lays the foundations for a new economic blueprint for Canada, would do well to maintain the policies that have worked for governments of all stripes: Limited regulation, low taxes and sound public finances.
By Sean Speer, August 12, 2016
Recent speculation has finance minister Bill Morneau and his advisory council on economic growth working through the summer to shape a new economic roadmap for Canada by year end.
It’s been nearly 10 years since the previous government released its Advantage Canada plan that Morneau and his council plan to update and replace. Much has changed in the intervening time, of course, but Ottawa would be wise not to throw the baby out with the bathwater. Much in Advantage Canada remains relevant today and into the future.
The case for such a long-term plan is to set a solid foundation for economic and fiscal policy. Economic fluctuations, natural disasters, political scandals, and the regular electoral cycle are just some of the factors that encourage short-termism. An economic roadmap can serve as a bulwark against these fleeting influences and keep the government focused on the country’s long-term economic prospects.
The key though is that such a plan must be rooted in the right ideas. It won’t be a helpful guide if it’s leading the country in the wrong direction.
Advantage Canada reflected a well-tested political consensus on economic and fiscal policy that served Canada well beginning in the mid-1990s. The Harper government brought its own priorities and thinking to the plan but the key pillars – low taxes, sound public finances, limited regulation and more market competition, and high-quality public infrastructure – were largely a continuation of the best parts of its predecessor’s agenda. It’s not surprising then that the plan’s stated goal was to maintain and strengthen Canada’s competitive advantage.
Ten years of developments – some anticipated and most unforeseen – have only reinforced the importance of certain parts of Advantage Canada. The sections on Canada’s public finances and tax competitiveness in particular should garner attention from Morneau and his advisory council.
The plan set out the goal of controlling government spending to the rate of growth in the economy, reforming government operations and services, and lowering the federal debt burden over time. The impetus was to ensure that tax dollars were well-managed and not unnecessarily consumed by interest payments, and that hard-fought progress on Canada’s public finances wasn’t reversed.
These goals weren’t always followed in subsequent years. Spending growth was faster than it should have been pre-recession and stimulus spending added billions to the national debt. But the general trajectory post-2011 was inspired by these core ideas. The result is that year-over-year spending largely flat-lined and the budgetary deficit was eliminated faster than most comparable jurisdictions.
Now, as the Trudeau government opts to run deficits to finance its broader agenda, its updated roadmap should consider a clear set of fiscal goals to ensure that Ottawa’s fiscal advantage isn’t undermined. New balanced-budget legislation with firm parameters on when budget deficits are acceptable would be a good start.
A series of tax hikes at the federal and provincial levels have weakened Canada’s tax competitiveness and risks discouraging investment, entrepreneurship, and charitable giving.
As for tax competitiveness, the Harper government’s continuation of its predecessor’s business tax reductions, the introduction of Tax-Free Savings Accounts, and a general trend of tax relief for Canadian families improved Canada’s position vis-à-vis other countries such as the United States. High-profile corporate moves to Canada, including Burger King’s inversion deal with Tim Hortons in 2014, show the benefits of tax competitiveness.
But there’s still plenty of work to do. A series of tax hikes at the federal and provincial levels have weakened Canada’s tax competitiveness and risks discouraging investment, entrepreneurship, and charitable giving.
One positive step would be a clear signal that the government’s current review of federal tax expenditures will ultimately form the basis of a tax reform agenda whereby the elimination of tax credits, deductions, and other special preferences is used to lower tax rates. Such broad-based tax reform could boost Canada’s middle class and strengthen our short- and long-term economic prospects.
Morneau’s coming economic roadmap for the country can support the government’s agenda and set a clear direction, even as circumstances change and evolve. The question though is what ideas shape its long-term plan. Reaffirming the past political consensus on economic and fiscal policy would be a good start.
Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute.
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