Finance Minister François-Philippe Champagne will release a spring economic update on April 28.Justin Tang/The Canadian Press
The C.D. Howe Institute is urging the Liberal government to rein in deficit spending with Tuesday’s fiscal update and to use its new majority to make tough decisions, even though they may be unpopular.
In a report released Thursday, authors Don Drummond, William Robson and Alexandre Laurin express concern with the recent wave of provincial budgets that showed larger-than-planned deficits and increasing debt levels.
Six of the 10 provinces – along with the federal government – are planning deficits this year that will be larger than 1 per cent of gross domestic product. Governments are also releasing financial plans at a time of high economic uncertainty. The future of Canada’s trading relationship with the United States is currently the subject of tense discussions, and the length and depth of disruption caused by the war in Iran and broader conflict in the Middle East is another major unknown.
The independent think tank says Ottawa should be straight with Canadians about the economic challenges ahead to make the case for “bold action” in response.
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“Fiscal excess has already undermined economic growth and living standards,” the report states. It further warns that without action to reduce the burden of public debt, government-fuelled consumption will continue to cut into the savings and investment needed to raise our incomes and purchasing power.
“The federal government’s upcoming fiscal update needs to outline a change of direction – a profound and credible one,” it said.
Specifically, the report calls for much lower spending in non-priority areas, including a clear track for erasing the deficit over a period of about four years.
The report said spending reviews should be far more ambitious than the plan announced in the Nov. 4 budget that is now being implemented by federal departments.
The authors also recommend major tax reform that would incentivize investment, including lower corporate income tax rates and shifting the tax mix from income to consumption.
Prime Minister Mark Carney’s announcement this month to spend $2.4-billion to shave 10 cents per litre on regular gasoline – and four cents per litre on diesel fuel – for a little more than four months is dismissed as a “boondoggle” by the institute.
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The gas-tax break is the type of spending that Ottawa needs to avoid, said Mr. Drummond, one of the report’s co-authors who is an adjunct professor at Queen University’s school of policy studies and a former senior Finance Department official.
“Stop the bad policy stuff. Stop the populist stuff. You’ve got the majority. You don’t need to do that stuff any more,” he said in an interview.
He said he found it distressing that young people are not speaking out more to oppose Canada’s deficit spending.
“We’re saddling them with these big debts and a tax burden that’s already very high. And of course, we’re doing less and less about climate change. So thank you very much. We’re going to leave them to bear the cost of that,” he said.
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On Wednesday, the Canadian Federation of Independent Business released a letter that the lobby group recently sent to Finance Minister François-Philippe Champagne ahead of his spring update.
“What is needed are fiscal policies that will incentivize individuals to start a business and help existing small business owners to thrive and be successful. What is not needed are administratively cumbersome, narrowly targeted programs that pick winners and losers and fail to reflect the realities of most small business owners,” the CFIB wrote.
The organization called for lower taxes on small business and less red tape.
“Government officials do not know which firm may be the next Lululemon, Shopify, or Couche-Tard,” the letter states. “Give our Canadian-born companies, of all sizes, a better chance to thrive.”
Also Wednesday, the Federation of Canadian Municipalities released its wish list for next Tuesday’s economic statement.
It included a call for Ottawa to reverse a plan to cut $5-billion from the Canada Public Transit Fund’s budget over the next 10 years. The federation is also seeking increased funding for programs that address homelessness and substance abuse, among other municipal priorities.