Then conservative leader Stephen Harper reaffirms his party's promise to reduce the GST during a rally in January, 2006.Paul Chiasson
There is much speculation about what will be in today's budget, and the various proposals can be classified along two dimensions: those that will or will not likely be in the budget, and those that are and are not good ideas:
Good ideas that will likely be in the budget:
- No extension of the fiscal stimulus program. The worst of the recession is past; the Bank of Canada is now in a position to provide monetary stimulus as needed.
- No immediate austerity. Even though the economy is recovering, there is still considerable slack in the economy. Now is not the time for cuts.
Good ideas that will not likely be in the budget:
- An announcement to gradually increase the GST back to 7 per cent starting in 2012. This would solve pretty much all of the government's budget problems in the medium term.
- A carbon tax. This is still the best way of dealing with the climate change file. And the climate change file is not going to go away.
Bad ideas that will likely be in the budget:
- Boutique tax cuts aimed at various demographic target groups. These introduce distortions that cannot be justified on economic grounds, and are very difficult to remove once they are in place.
- Implausibly low projections for future deficits. The October update projects that growth in spending will be on the order of 2 per cent per year. This requires significant program cuts - which the government has promised not to implement. More generally, unrealistically optimistic projections were a recurring feature of budgets in the years of the deficit-debt spiral. Wishful thinking is not a habit governments should be getting back into.
Bad ideas that will not likely be in the budget:
- Reversing the corporate tax cuts. Corporate taxes are the most harmful to economic growth, and increasing them is the worst way for governments to generate revenue.
- Removing the GST from home heating costs. Since it seems to be aimed at the NDP's base and not that of the Conservatives, this is one boutique tax cut that likely won't be in the budget.
Stephen Gordon is a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). He is a regular contributor to Economy Lab and also maintains the economics blog Worthwhile Canadian Initiative.
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