PCs’ approach to budget hardly differs from NDP’s

Hey there, time traveller!
This article was published 02/06/2016 (3447 days ago), so information in it may no longer be current.

The Manitoba Progressive Conservative budget has come down, and some have found it baffling — and rightly so. A party elected on change offers a budget little different from from the recently departed NDP, but gaps and contradictions abound.

One contradiction: the PCs will revamp legislation that makes it illegal to run a deficit, but plan to run a deficit for the next eight years. The deficit this year will be over $1 billion, but this drew muted praise rather than condemnation from the Canadian Federation of Independent Business (CFIB) and the Canadian Taxpayers’ Federation (CTF).

The conventional wisdom, presented by the finance minister and echoed in the budget itself, is that “NDP overspending” is to blame. This fits in with the NDP’s “brand” of being big-spending socialists, but is totally at odds with everything the government actually did while in power: they governed like PCs, both economically and socially.

On social issues, the NDP largely froze spending related to poverty. The social-housing allowance stayed at 1992 rates ($285 a month) for 22 years. Justice funding, on the other hand, doubled, as successive NDP governments supported Conservative justice measures, resulting in part in an incarceration rate twice the national average.

On the economy, by the spring of 2008, the NDP boasted that their tax cuts since 1999 had totalled $1 billion a year. This included cutting the small business tax to zero (even though small businesses are an extremely popular tax-shelter and income-splitting vehicle for the wealthiest Canadians). Other business, income and property taxes were all cut as well.

Now, $1 billion in tax cuts is actually $1 billion less in government revenues, but since the economy was OK, revenue matched spending.

Then, in the fall of 2008, the worst financial crisis since 1929 hit, and the global economy has yet to fully recover. Debt didn’t cause the crisis: the crisis caused debt as governments absorbed losses from a colossal private-sector market failure. Countries all over the world started running deficits, because revenues plummeted.

Could governments have cut back and engaged in austerity? Some did, but when governments cut back during a recession it means less money is flowing into the economy, and it makes the downturn longer and deeper. The countries that practised stimulus since 2008 have recovered best, the ones that cut back have foundered. Greece is a case in point: when forced to adopt austerity by its creditors, it managed to balance its budget — but its GDP had dropped by 25 per cent (20 per cent more than predicted) and unemployment is at 25 per cent to 50 per cent for people 25 and under.

There are serious problems with the PCs’ misconception that spending, not inadequate revenue, is causing the deficit. It means their diagnosis and prescription will both be wrong. Reducing spending means pulling money out of the economy, and lowering taxes will further drive down revenues and increase the deficit and the debt.

Manitoba has not been overspending: in fact, spending has been perfectly aligned with the growing economy. The problem is that revenues keep dropping, partly because the NDP kept cutting taxes in ways that didn’t help the economy — such as education tax rebates for seniors, even wealthy ones.

The overwhelming focus on taxes ignores the more fundamental problem in Manitoba, which is that we have some of the lowest private-sector wages in Canada, and our job market, while stable, is rigid. In Canada, and in Manitoba, personal, business and many property taxes have been significantly reduced in the last 20 years, but most people haven’t felt it because people’s wages and incomes aren’t going up even when the economy grows.

Nobody moved to Fort McMurray because of low taxes: they moved there because of high-paying jobs — and people with high-paying oil jobs allowed provinces like Saskatchewan and Alberta to lower their taxes. But lowering our taxes to compete with Alberta and Saskatchewan will not persuade oil wells or potash mines to relocate to Manitoba. Those provinces also cut taxes in good times: Alberta’s deficit this year will be over $10 billion, Saskatchewan’s will be $434 million.

Government’s role goes far beyond just creating a competitive tax environment for business. All the things taxes pay for also matter to the people who work and invest: quality health care and education, decent roads, and, above all, customers with money in their pockets.

The irony of all of this is that the PCs and the NDP have for years been pretending that the NDP is left-wing — to the benefit of both. The problem for Manitobans is that the NDP ran a PC government for 17 years, and ironically, Manitobans may now get four more years of the same.

Dougald Lamont is a communications consultant. He is lecturing in government and business relations in Canada at the University of Winnipeg.