Thursday, November 1, 2007

Pros & Cons of Flaherty Budget

Earlier this week Flaherty and Harper decided to defy convention by refusing to present the fiscal update to the finance committee and once again trying to control everything so the media gets the Conservative message and no one else's before the evening news.

As for what was actually in the budget, it was not near as bad as I thought it would be. The GST cut is stupid plain and simple and obviously no one thinks it's good policy. The Conservatives can take all the credit for that they want, there will be no benefits to the Canadian economy from it and it disproportionately benefits the rich. I question why the Conservatives went ahead with it anyway, I don't think it's really all that important to their base. I guess it was just to "Keep a promise" and a stupid one at that. But if they think they're going to run the next campaign on having kept all their promises they are sadly mistaken (the gutting of the "Acccountability Act", blustering on Access to Information, Income trusts and softwood lumber all come to mind) so if that was their only reason for doing it, that's poor judgment. This would have been the one broken promise they could have gotten praise all around (myself included) for.

As for the actual real income tax cuts. I liked these. I was pleasantly surprised to see that they stuck to the lowest income bracket (I was afraid they would eliminate the middle bracket or slash the top one or something along those lines) and raised the basic personal exemption. Both of those things were clear Liberal initiatives. Just like Harper did with the environment, he's initially slashed Liberal policies only to return to them later and take credit. The Liberals can't him do that on this one (Dion should be front and centre on this like he was on the environment, that Harper can't take all the credit for completely re-instating Liberal policies). Harper has only now just re-instated virtually the EXACT SAME tax regime vis a vis income taxes that existed before the last election.

The Liberals should ask Flaherty point blank "Do you now admit it was a mistake to raise personal income taxes in your first budget?" The Liberals have to not let Canadians forget that it was Liberals who lowered income taxes only to have Conservatives raise them again. Good to see they are back to where they were, but let's not let them claim all the credit (so far from reading the media coverate though it seems the Conservatives are getting more credit than they deserve).

As for the corporate tax cuts, I think these were what Dion was planning to do anyway, so again Dion should let the Conservatives claim this was their idea. Dion was out first about it.

It's funny how things change when the Liberal brought down these tax cuts before the last election, it was the Conservatives who voted AGAINST them, while the NDP and Bloc supported them (if memory serves me). Now the Conservatives apparently support these kinds of cuts, while the NDP rails against them, my how consistent these 3 parties are (who all have the same leaders as then mind you). I can understand the NDP ranting and raving about corporate tax cuts, but from the comments I've read it seems Layton opposes the income tax cuts in this mini-budget as well. Why did you vote for them last time then Jack? The NDP plainly just doesn't (or doesn't want to) understand the economy and it's why they can never be taken seriously as a plausible government in waiting.

The Conservatives and NDP can all rant about abstaining over this and that, but Harper abstained on the budget in 2005 which is the EXACT equivalent of what the Liberals are doing now so he's got no argument to make here. Meanwhile, Layton's numbers don't matter (so he's not in the position of where abstaining would make any difference) and his opposition to these income tax cuts doesn't jive with him supporting the very same cuts not too long ago. He just wants to pretend to oppose the Conservative agenda while hoping they get to stay the government for the next few decades, so maybe one day in his most ideal scenario he'll actually be, gasp, Leader of the Opposition! Some dream for all those Dippers out there, really making a positive difference to bring about a more progressive Canada.

So given that Canadians deserve these income tax cuts, I'm glad to see the Liberals did not vote against them. However, even though many other Liberals may disagree I think come election time, the Liberals should say that they are going to raise the GST back to 6% and in return, cut the lowest income bracket deeper (and raise the basic personal exemption subject to taxes higher), while also having a clear plan to combat poverty. As long as Liberals can make clear than the large majority of Canadians will be paying less overall (as only the richest would save more off a GST cut) it could sell. I know the media loves to claim that GST cuts are gold politically (and it seems many Liberals have bought into the idea that a GST raise is poison), but I don't think low and middle income Canadians care that much about saving 1 cent on every dollar as much as the media claims they do. If you're going to save several hundred a year off your income taxes that matters more. It wasn't too long ago that even Conservative supporters would have agreed with that, but if Harper says GST cuts are good, then of course the Tory supporters blindly follow.

If the Conservatives could win the last election on a campaign of cutting the GST while raising income taxes (by a full 1 percent no less which was a huge raise that in the end they didn't even go along with due to outside pressure), then the Liberals can win by raising the GST by 1 percent and lowering income taxes instead. Canadians will benefit more, the poor will benefit more (as long as the poverty plan goes along with it) and economists and the business community will praise it so I think that's the right approach even if it doesn't seem to be the "safest" politically. Liberals can't be afraid to stand up for good policy and defend it to the people in a campaign. Canadians would pay less under a Liberal government it's as simple as that. That's all that needs to be said between now and the campaign.

Though I think it was mistake for Dion to admit to considering raising the GST right now, it should be left for the campaign (and worked out with caucus in the meantime on how to sell it) when the Liberal tax plan can be compared against the Conservative one and all will see that the Liberal plan is better for the economy (on the taxes side) and better for Canadians as a whole (on the social spending side). The Conservatives were bold in the wrong direction on taxes last time (higher income taxes, lower GST) we can bold in the right direction (lower income taxes, higher GST) this time.

In the meantime as I've said many times before we should pick our time to go to the polls and this was not the one to go on.

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Anonymous said...

If a low GST only benefits the rich, then a high GST will not impact the poor. Correct?

Seems to me like the GST should be raised to 10-15% in order to divert money from those rich bastards to the poor. Right?

Mike said...

There's a balance to be struck between consumption and income taxes. Too high of consumption taxes hits the poor too much. A 1% difference up or down makes little difference for the poor and a big difference for the rich. You tell me who benefits more proportionately off a 1% cut in the lowest income bracket versus a 1% cut in the GST? (yes there are people who don't pay income taxes at all but that's a small number and a separate poverty plan can help them)

wilson said...

Correct me if I am wrong.

Martin proposed personal income tax cuts from 16% to 15% in Nov 2005, for the year 2006.
Canadians went into an election campaign in Dec 2005-Jan 2006.
Libs lost.

The Martin proposal was not implimented and the newly elected PMSH dropped the rate from 16% to 15.5%

So PMSH did not increase the personal tax, he just lowered it 1/2 of a percentage point less than the Martin proposal.

Anonymous said...

The argument that Harper never raised income taxes only comes from people who obviously never filed their income taxes that year.

Let me ask you what was the lowest income bracket rate taht year? Was it 15%. Oh that's right...

Legislation or not who cares, that's the rate people actually paid that year, so it was raised.

Luke said...

GST Cut-One has to spend money to save money. That makes sense to me.

Anonymous said...

"one has to spend money to save money"

And that helps the economy how? Does it help productivity or bolster Canada's competitiveness on the world stage or help the job market in any way? Does a 1% cut in the GST even save ANY ONE who earns less than $200,000 a year more money than a 1% income tax reduction?

Anonymous said...

mike said:

"A 1% difference up or down makes little difference for the poor and a big difference for the rich."

My question is how many 1% increments are required in either direction before the poor start to notice?

An elimination of the GST would obviously benefit both, but are you saying that keeping the GST actually benefits the poor more?

On the flip side, if Harper had decided to increase the GST to 9% would the arguement be " worries, it's only a few pennies here or there so the poor won't notice it"? Certainly not. The shrill screaming of "you're killing the poor" would drown out everything.

A tax cut of any kind keeps money in the pockets of those who rightly earned it.