The Harper government released a pre-election budget on April 21 that was predictable in some places – a few well publicized political nods to seniors here, and an expected snub to the environment there. However, those who were expecting 500 pages of pure ideology aimed at destroying the Canada we know and love were likely disappointed to find that what was released was actually both pretty moderate and very similar to Wynne’s budget in Ontario. As promised, it is a balanced budget, which I think is positive, even with the gymnastics involved (some, like selling assets like GM shares, that are also similar to measures in Wynne’s budget). In fact “as promised” could be a theme that describes much of the budget. The most striking feature of this budget, highlighted by its supporters and detractors alike, is that it gives people what they want, and is clearly designed to help Harper win re-election.
Supporters will argue that populist policies like this are perfect examples of democracy at work; the government is being accountable to the people and giving them what they ask for (which seems to often be tax cuts). Opponents will say that populist approaches to governance like this are irresponsible because they tend to neglect the most vulnerable minority groups (e.g., the poor, marginalized, and the non-voting *ahem* youth: do yourselves a favour) and certain long-term interests that may be at odds with short-term demand (e.g., climate change). I think they are both right. Democracy would not function if the people in power did not respect the will of the people who elected them, but certain checks and balances must also be in place. For example, the Supreme Court must be the ultimate guarantor of civil liberties for all, especially those who could be marginalized by the mob (and this Court seems to have no issue with this function – striking down this government’s measures that fail their sniff test). In the case of advancing long-term interests over short-term interests, it should be the government’s job (i.e. not the Court’s), but democracy guarantees that they also must bear the burden of proof to convince the people of the prudence of non-populist policies.
Matt has given a very scathing review of the budget and Harper’s economic policy overall. Some of it I agree with (e.g. ignoring climate change, scrapping the long-form census, pushing back new infrastructure spending 3 years); some of it I don’t. One of the main arguments I disagree with, certainly as it pertains to this budget, is that Harper’s economic policy is driven by blind ideology and that he is unable to pivot in the face of evidence or political will. While Harper has certainly not budged from ideology on some files (e.g. crime, climate change), the record will show the economy is not one of them – with Harper making numerous pivots on important issues, including trade, stimulus and financial regulation (other non-economic files he has pivoted on include social issues like abortion and gay marriage, which he has not touched in power). For this reason, I think criticisms of Harper’s positions as an activist more than 10 years ago are probably not the best arguments now that he has an established record in power.
Below is a brief discussion of several measures within the budget, where I comment on the widely-publicized measures (e.g. income splitting) and point out some less widely-publicized measures that I think are good examples of Harper’s willingness to break from ideology in favour of evidence and/or public will, many of which I support. My overall goal is to show that rather than ramming ideology down people’s throats, this budget mostly gives people (at least those who vote) what they want, where ‘people’ receiving goodies includes not only seniors and families with children, but also small businesses and startups, youth entrepreneurs and interns, and (believe it or not) feminists. One of these, the ‘comply or explain’ measure aimed at improving female representation on corporate boards, is a topic of my separate longer post in this discussion.
Income splitting: good idea, execution could have been improved
While I would have preferred to see this provision be accompanied by subtle changes in the highest marginal tax rates to make it a revenue-neutral measure, as is suggested here, I think the principle of income splitting is basic fairness: two households with the same financial conditions should be taxed at the same rate. Furthermore, the current system without income splitting effectively penalizes inter-class marriages, which are one of the most effective means of wealth redistribution and sharing of social capital. I am generally in favour of any measure that encourages (or at least doesn’t penalize) inter-class marriages and other forms of social integration (e.g. mixed-use zoning in cities), which I believe will do more to address wealth inequality than any progressive taxation is capable of doing. It is important to realize that horizontal equity (tax burden equity between two families with the same total income) and vertical equity (progressiveness/regressiveness of the tax code overall) are completely separate. Changing the top tax rates to make up the lost revenue from income splitting can (and I think should) be done. There is nothing fundamentally regressive about the idea of income splitting. Additionally, if you zoom out and look at all of the tax cuts enacted under Harper’s watch (which have been substantial, ~11-12% of the national income, an order of magnitude many disagree with), they have most significantly affected the bottom line of low-to-middle income earners, with the most progressive measure being the GST cut that was much derided by progressives.
The other frequently recited argument against income splitting is that it will encourage low-earning spouses to leave the workforce, which, given that men earn more in 80% Canadian heterosexual married couples (a statistic that reflects gender differences in marriage preferences as much as in earnings, capturing the growing trend that low-earning so-called ’unmarriageable’ men are just not getting married at all), is seen by some as a blow to women’s advancement. This is an argument I think is way off the mark for the following reasons: 1) the number of workers projected to leave the workforce is so minuscule as to be within the noise (~7000 across the entire country, hardly a massive blow to women’s (or anyone’s) labor force participation. It is analogous to boasting the Keystone XL pipeline as a ‘job-creating’ measure or deriding it as a ‘job-killing’ measure in the US when the best estimates of its impact are on the order of ~50 jobs either way (Imagine the ad: *uplifting music* “One person every seven days gets a job because of the Keystone XL!”); 2) the few workers projected to gain incentive to leave the workforce from this measure are in very low paying jobs (often minimum wage), not highly paying careers with advancement opportunity. If this tax break allows a small number of people to spend more time with their kids instead of working at McDonald’s to supplement a spouse’s income, I say that is a net positive.
So in summary, while I would have enacted it in a revenue-neutral way (the wasted-revenue criticism is fair), I think the main arguments against the idea of income-splitting are either slightly off the mark (income splitting is fundamentally regressive) or just partisan obfuscation (income splitting is a blow to the advancement of women).
TFSAs are good, but 10k is too high:
I generally like the idea of TFSAs (for example, as an easy way to encourage young people to save a bit of money in lieu of buying the house they can’t afford) because they encourage savings and reflect the idea that income should only be taxed once. In fact, the TFSA was originally created as a vehicle to help low-income Canadians save for retirement. If it is primarily a vehicle to allow low- and middle-income earners invest without being double-taxed – without being a tax shelter for all investment income, even from higher earners – what is the appropriate annual limit (5K? 10K?)? I would not be rigidly against all raises to the limit above the current 5.5K, but I do tend to agree with most pundits that 10K is probably too high. However, even at this level, I don’t think the costs outweigh the benefits to a disastrous magnitude.
Benefits for small businesses and entrepreneurs: critical for Canada’s long-term competitiveness
With the trend going toward increasing free trade and globalization (not the other way around), Canada needs to stay innovative and competitive to maintain our place in the world-ranking of living standards. Isolationism and protectionism sound nice in theory; but as long as we keep eating bananas and oranges in the winter and buying affordable goods manufactured elsewhere, we have to offer the rest of the world something in return (ideally more than just our oil). Getting ahead of the curve in new technology innovation is therefore critical to our long-term economic prospects. There are numerous items in the budget that will benefit small businesses and startups. They are outlined briefly here. Small businesses are the exception to the rule that corporate tax cuts do not offer significant economic benefit when rates are lower than nearby jurisdictions. In fact, even Thomas Mulcair is a proponent of targeted tax cuts for small businesses for this reason. These measures actually complement well what Kathleen Wynne has put in Ontario’s budget to help small businesses grow and encourage entrepreneurship in the province, including the announcement of a new early-stage venture fund. I think that encouraging the growth of a vibrant startup ecosystem is one of the most important investments Canada can make (particularly in Ontario) to curb the drain of talent to the US and the oil patch, and help us grow an economy that is diversified away from dominance by oil & gas. To their credit the federal Conservatives have done a lot of good in this area, as well as in foreign trade, which also benefits startups trying to grow internationally (but does harm other types of small businesses).
I agree with Matt’s positive assessment of Harper’s evolving trade policy, his support for free trade and willingness to take serious steps to get into Trans-Pacific Partnership. I am particularly optimistic about his willingness to ultimately phase out supply management, which is both a likely requisite for getting a meaningful place for Canada in the TPP and a positive and progressive economic move that would face opposition from a very powerful lobby. For the record (and to be fair), Trudeau is also in favour of the TPP. He stands behind supply management, but I suspect this is a political stance that he holds only because he is in opposition and doesn’t have to choose between one or the other (I suspect he would choose TPP given the choice). The NDP has come out more protectionist – in support of supply management and lukewarm on the TPP.
Cracking down on unpaid internships: great!
Finally there is a provision cracking down on unpaid internships. Most would agree this is long overdue. The NDP accuses Harper of copying directly from their private member’s bill on the same issue. I don’t see why the opposition should complain when a majority is listening to them. Some might even call that bipartisanship.
‘Comply or explain’ strikes the right balance
The Conservatives have included in their budget a ‘comply or explain’ provision aimed at increasing female representation in management of public companies. I think the measure strikes the right balance on this issue and is a far better idea than either quotas or doing nothing. I elaborate on this in my separate post on this topic.
Critics will argue that many of these positive measures that I cite are similar to those proposed or previously enacted by the Liberals or the NDP. Many NDP and Liberal supporters have accused the Conservatives of either ‘stealing’ their ideas or only agreeing to them under intense opposition pressure (i.e. the Conservatives are therefore still hyper-partisan ideologues at all times). I think the free adoption of good ideas from your opponents (when as a majority there is no pressure to do so) is actually evidence of the opposite, as Matt puts it ‘the ability to strategically pivot their policies to match the times’ or letting evidence trump ideology and partisanship. There have been a few such pivots from Harper, including on his support for bank regulation in the wake of the financial crisis. To be clear, there are plenty of measures enacted by the Conservatives over the last decade in power that I don’t agree with, including a fair number that are excessively partisan or ideological (and many of which promptly die at the Supreme Court these days). But if one wishes to be a staunch critic of partisanship and rigid ideology and a promoter of evidence-based policy, they have to also walk the walk: in other words they must be mindful of their own ideology and partisanship – evaluating a party and their platform fairly, no differently from how they would evaluate their own party. Applying that standard to this particular party on this particular day – with all measures considered – I don’t see what all the fuss is about.