Ottawa could erase the federal deficit 17 years ahead of the Finance Department’s current projection, according to the C.D. Howe Institute’s annual Shadow Federal Budget.
In 2015, Prime Minister Justin Trudeau campaigned on short-term $10 billion annual deficits with the aim of balancing the books by the end of the government’s mandate in 2019. Deficits figures have risen sharply to about $19 billion per year over the past two years, and Finance Minister Bill Morneau’s latest fiscal plan did not include a path to balance.
A Finance Department report released late last year on the future of federal finances through 2055 showed deficits will persist until the 2040-41 fiscal year, a 15-year improvement from the 2016 version of the report.
C.D. Howe authors William B.P. Robson and Alexandre Laurin suggest a balanced budget could be achieved by 2023-24, if Ottawa were to follow the path they outline.
“Ottawa has embraced red ink and undermined its ability to resist spending demands from its
would-be beneficiaries and those who advocate living for today,” Robson and Laurin wrote. “This Shadow Budget contains a number of measures to enhance Canada’s attractiveness as a place to work and invest, while restraining less productive expenses.”
C.D. Howe’s Shadow Budget uses economic and fiscal projections from the October
2018 Fall Economic Statement as its baseline.
Among the pro-business think tank’s recommendations; boosting the income threshold for the highest tax rate from the current $205,842 to $411,684, causing a short-term $364 million annual net cost to the federal budget.
“The positive responses to the lower rates would expand the tax base for both the federal
government and for provincial governments. The revenue dividend for provincial governments would be around $767 million to $300 million more than the reduction in federal government revenues,” the authors wrote. “The resulting provincial tax-revenue windfall would provide timely help for provinces and relieve provincial pressures for more federal transfers.”
Other measures include lowering corporate income taxes from 15 per cent to 13 per cent to incentivize investment and respond to business-friendly U.S. tax cuts, requiring sellers of digital goods and services in Canada to pay tax regardless of their location, and upping the GST rate on transportation fuels to 15 per cent to discourage emissions, in lieu of Ottawa’s current carbon strategy.
The budget highlights the disparity between per hour compensation for federal service jobs ($66), excluding defence, compared to private-sector professional, scientific and technical service jobs ($41 per hour) and finance and insurance jobs ($51 per hour).
Robson and Laurin recommend freezing departmental operating budgets, and giving managers latitude to adjust compensation to better reward higher performers and reduce the number of less valuable positions.
C.D. Howe warns that addressing the federal budget deficit has become more pressing given recent signs the Canadian economy is running at capacity and global growth is slowing.
“This Shadow Budget, therefore, combines near-term initiatives to improve Canada’s competitiveness with measures that would set a path toward budget balance by the end of a four-year term for the next Parliament,” Robson and Laurin wrote. “It is the fiscal leadership Canadians need in 2019 and beyond.”