Pension Fund Managers Support Tax Cuts, Target Date for Balanced Budget, and Legislated Debt Reduction Plan
Contact:
Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545, Email: michaelw@fraserinstitute.caRelease Date: 7 January 1997
VANCOUVER, BC>>> Canadian fund managers responsible for approximately $150 billion in total assets under management hold the view that the next federal budget should have tax cuts, a target date for a balanced budget, and a legislated debt reduction plan, according to a Fraser Institute Survey of Senior Investment Managers.
An overwhelming 87 percent of Canadian pension fund managers surveyed believe that the 1997 federal budget should include tax cuts in order to stimulate the economy and create jobs. Thirty-one percent of those surveyed would like to see a cut in each of personal, payroll and corporate income taxes. Another 22 percent expressed a preference for a cut in the federal personal income tax only, but by 30 percent over 3 years, while 18 percent preferred a reduction in payroll taxes only. A reduction in both income and payroll taxes was the preferred option for 16 percent of those surveyed. "The results of this survey suggest that the Minister of Finance would find support among financial market participants for payroll, income and/or corporate income tax cuts in the next budget," said Fazil Mihlar, Policy Analyst at The Fraser Institute.
The research evidence suggests that high marginal tax rates on labour income discourage work effort. Payroll taxes increase the price of labour input and thus induce firms to substitute capital for labour. Taxing capital gains reduces both savings rates and aggregate investment. The Finance Minister recently told the House of Commons Finance Committee, however, that he believes this is not the time for a broad-based tax cut. "If the government is serious about job creation, it should consider the research evidence and the view of fund managers, and implement a broad-based tax cut in the next budget," said Mr. Mihlar.
Balancing the Federal Budget: Set a Target Date
Respondents were asked whether the Hon. Paul Martin should set a target date for balancing the federal budget in the forthcoming budget. Ninety percent of the respondents said yes. Forty-three percent of the fund managers believe that the budget should be balanced by the fiscal year 1999-2000, while 35 percent would like to see the budget balanced by the year 1998-1999. "The results of the survey send a clear message to the Finance Minister that a target date for balancing the budget should be in his 1997 budget," noted Mr. Mihlar.
Unsustainable Federal Deficit: Further Spending Cuts Needed
An overwhelming 98 percent of respondents strongly agreed or agreed that the size of the current federal deficit is not sustainable. When asked how the deficit should be eliminated, 94 percent of those surveyed suggested further spending cuts. "Once again, the message seems to be clear: deeper spending cuts are necessary to balance the budget, not tax increases," added Mr. Mihlar.
Ottawa Should Adopt a Legislated Debt Reduction Plan
The federal net debt has increased from $508 billion in 1993-94 to $602 billion in 1996-97. During this same period, interest on the public debt has escalated from $38 billion to $48 billion. Indeed, the federal government's net-debt-to-GDP ratio at 74.8 percent is one of the highest among industrialized countries.
Respondents were asked if the federal government should adopt a legislated debt reduction plan to reduce the debt load. Forty-five percent said yes, 37 percent said no and 18 percent responded with a don't know. In addition, 41 percent of the respondents suggested that the debt should be paid off over a 40 year period, while 22 percent would like to see the debt eliminated over a 30 year time horizon. A debt reduction plan would help shift the emphasis from deficit elimination to debt reduction. "It is important that Ottawa consider a debt reduction plan in the next budget, since interest on the public debt diverts money from much needed programs during economic downturns," explained Mr. Mihlar.
Separation of Quebec a Likely Prospect
When asked whether the province of Quebec will separate within the next five years, 63 percent of the respondents said it was either very likely or likely. This response is consistent with the last survey. "Given the on-going concern about Quebec separation, Ottawa would be well advised to deal with the unity file as a matter of utmost urgency," commented Mr. Mihlar.
High Approval Rating for the Minister of Finance
Fund managers appear to have confidence in the Minister of Finance. In fact, an overwhelming 89 percent of the respondents rated his performance as either excellent, very good or good.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
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The Fraser Institute, (604) 714-4582,
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