Breakdown

With the Jan. 27 budget now just two weeks away, finance minister Jim Flaherty spent this past week travelling across the country. Flaherty is using this nationwide Q&A tour to ask prominent economists and ordinary Canadians what they think the budget should look like.

With the Jan. 27 budget now just two weeks away, finance minister Jim Flaherty spent this past week travelling across the country.
Flaherty is using this nationwide Q&A tour to ask prominent economists and ordinary Canadians what they think the budget should look like. He has to be careful not to stay anywhere too long, as Liberal Leader Michael Ignatieff is in hot pursuit on his own cross-country tour.
Rather than asking, Ignatieff is telling Canadians what the budget had better look like if it’s going to get his support.
This move could give the Liberals a one up on the governing Tories, if they do not meet his requirements and he’s forced to pull the plug on their government, he can always say they’d been warned. With the budget still far enough away, Ignatieff could even go a step further and preempt the Conservative budget with his own mock budget. This would present Canadians with a tangible alternative to the present government.
The Liberals are suffering from a fear of the unknown – people still don’t really know what they and their new leader are all about, so why not show them?
Flaherty’s also on the right path, but has some catching up to do. If he really hasn’t known what to do all this time, then at least he’s finally started seeking help and asking questions. It would be nice if elected officials could at least admit they were having a hard time rather than pretending to be in total control right up until the moment the plane crashes into the mountain.
Not surprisingly, the citizens of Canada seem to be looking for tax cuts and increased government spending. Politicians have been quick to agree with them, but how far can deficit financing really take us? The tide of Obamoid-liberalmania has unquestionably moved up north, so where’s our $1 trillion structural deficit? What we need most at this juncture is a reality check.
First, the government gets almost all of its revenue from taxes, which come in some form or another out of our pockets. The $30 billion deficit that we’re expecting means the government is spending $30 billion more than we’re giving them. When there’s a deficit the government doesn’t pull the money out of thin air, they borrow it with interest. Any extra money we spend today we have to pay back – and then some, down the road.
Second, tax cuts reduce the government’s revenue, thereby reducing its spending power. In the past week there has been increased mention of using tax cuts to spur consumer spending. The idea here is that if people have more money they will spend more and get the economy rolling again. This philosophy is occasionally successful, but only if implemented sensibly – the GST cut reduced the government’s revenues by millions of dollars, but had a negligible effect on consumer behaviour. If we’re going to cut taxes, lets try to make sure every dollar we take out of the government’s pockets has a positive effect on everyone involved.
All of this money the government wants to spend is our money, so we should be careful how invitingly we encourage them to spend it. A new constituency has emerged out of this crisis, the blue-collar social-conservative/fiscal-liberal. These blue-collar types who once abhorred big government are now demanding action. These folks hate gays, love babies and have a bad case of spending fever. Come election time parties will be vying for these votes, so don’t expect these voices to go away.

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