Politicians willing to talk about taxes… even increases

Hey there, time traveller!
This article was published 05/08/2015 (3749 days ago), so information in it may no longer be current.

There was a time, not so long ago, when most politicians in this country had trouble uttering two specific words, particularly when they were used together.

Tax increase.

And for much of the past 20 years, why would politicians run the risk of using those words? Starting in the late 1990s, provincial and federal governments had robust revenues and balanced budgets. That allowed government to trim income tax rates and lower business and other corporate tax rates.

The rate of tax cutting slowed considerably after 2008, when a global recession stalled economies and eviscerated government revenues. Many developed countries borrowed heavily to make stimulus investments, further dampening appetites for tax cuts.

Now, in the heat of a federal election campaign waged against the backdrop of what appears to be a double-dip recession, some politicians have actually been overheard talking about the virtues of targeted tax increases and a moratorium on tax cuts.

In fact, in the current federal election, Canadians will be presented with a much broader spectrum of tax policies than in any campaign in recent memory.

The Conservative party is continuing its assault on the tax system, offering billions in tax credits and benefits to lure voters into giving it a fourth consecutive mandate. This follows on the heels of pre-election decisions to allow income splitting and issue $3 billion in child-care benefit cheques.

The Liberals and NDP, on the other hand, are dabbling in strategic tax-hike policies.

For the Liberals, the plan is to increase income taxes on the wealthiest Canadians and use that money to pay for cuts to the middle class. The NDP, meanwhile, has steered clear of income taxes for now in favour of a plan to increase corporate taxes.

The federal parties seeking a mandate to raise taxes have good company among the provinces, several of which have either promised to, or already hiked, a variety of taxes. This includes the controversial decision in Manitoba to hike the PST one percentage point.

However, Conservative Leader Stephen Harper is well aware it’s hard to anticipate how the electorate will react to a tax-hike pledge. In opinion polls, respondents often show tacit support for targeted tax increases, particularly if the money is going to health care or infrastructure. In practice, however, it’s hard to predict how the citizenry will respond when faced with the prospect of a tax hike.

Municipal leaders in British Columbia’s lower mainland learned this lesson after their plan to increase sales taxes to fund transit infrastructure suffered a humiliating defeat in a referendum. Again, opinion polls had shown solid support for the plan. Those who voted in the referendum had other ideas.

The same hard lesson was learned by former Liberal leader Stéphane Dion, who unveiled a plan in the 2008 election that would have imposed taxes to curb carbon emissions and used some of the money for income tax cuts. Dion’s plan was praised by economists but rejected by voters.

Harper and the Conservatives are desperate to portray the tax increases proposed by the opposition parties as inherently risky. A major theme in his early campaign stump speech is the assertion that tax hikes automatically lead to increased spending and chronic deficit financing.

Like much of the Conservative platform, however, that assertion is empirically flawed. Although imprudent spending can create fiscal challenges, so, too, can unbridled tax cuts. Simply put, both strategies can mess with any government’s bottom line.

For example, the Conservative government was on track to balance the federal budget this year before two major developments derailed those plans. First was the precipitous decline in oil prices, which has drained billions from the treasury. Second was Harper’s decision to forge ahead with costly tax cuts, credits and benefits, particularly income splitting and child-care payments.

A prudent fiscal policy would have seen Harper delay or roll back some of the tax cuts until government revenues stabilized. Cutting taxes so deeply, at a time when the economy is struggling and revenues are uncertain, is as risky as rampant spending.

Harper acknowledged as much Tuesday when he said a pledge to restore a $5,000 home-renovation tax credit would only be enacted if the budget can be brought into surplus. For now, this tax credit is a purely hypothetical campaign pledge given the budget is expected to remain in deficit this year, and possibly next year as well.

For now, Harper can only hope voters are so enamoured with the idea of tax cuts that they don’t care about the impact they may have on the budget.

How will voters respond to the NDP and Liberal tax-hike plans? Liberal Leader Justin Trudeau is hoping a policy that increases taxes on the wealthiest Canadians to pay for middle-class tax cuts will improve overall Grit fortunes when it comes time to vote. In an age of anemic voter turnout, this is a risky strategy.

The same goes for NDP Leader Thomas Mulcair’s focus on corporate tax hikes. Again, the NDP believes this policy will appeal to the pool of middle-class voters. However, the strategy is likely to fail unless a larger number of those middle-class voters shows up to vote.

The best news of all for voters, however, is there is finally some contrast between the three major parties.

dan.lett@freepress.mb.ca

Dan Lett
Columnist

Dan Lett is a columnist for the Free Press, providing opinion and commentary on politics in Winnipeg and beyond. Born and raised in Toronto, Dan joined the Free Press in 1986.  Read more about Dan.

Dan’s columns are built on facts and reactions, but offer his personal views through arguments and analysis. The Free Press’ editing team reviews Dan’s columns before they are posted online or published in print — part of the our tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.