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The Fraser Institute

Federal budget uses security issues as a smoke screen for higher spending

Contacts:

Jason Clemens, Director of Fiscal Studies
The Fraser Institute (604) 714-4544
Email jasonc@fraserinstitute.ca
 
Joel Emes, Senior Research Economist
The Fraser Institute (604) 714-4546
Email  joele@fraserinstitute.ca

For Release: 10 December 2001

VANCOUVER, BC— The federal government, in its first budget in nearly two years, announced large spending increases, moderate tax increases, and no debt payment says The Fraser Institute in its response to the Federal Budget, tabled today.

"This budget is a missed opportunity to fund needed security and defence-related spending, while enacting further tax cuts to foster long term economic growth," says Jason Clemens, the Fraser Institute's director of fiscal studies.

"This budget is a familiar spending grab bag wrapped in security concerns. Only one in six dollars of the program spending increase will actually go to security in 2002/03," continues Clemens.

Spending Increases

The government announced that spending in the current year, 2001/02 would be $5.9 billion higher than originally announced in the October 2000 mini-budget. The government detailed spending increases amounting to nearly $7.0 billion for next year (2002/03) which does not include an additional $2.5 billion, which will likely be spent on infrastructure and aid to Africa.

Moderate Increases for Security and Defence

Very little of the new spending is security-related. Overall "security" spending-which includes everything from defence, airport security, CSIS, and immigration, to the RCMP-will increase $1.1 billion this year (2001/02) and $1.5 billion next year. This represents 18.6 percent and 15.8 percent of the total budgeted increase in spending for 2001/02 and 2002/03, respectively.

More telling of the neglect of security and defence issues is the relatively small allocation for current defence endeavours. The Budget increased funding for defence operations in the amount of $400 million for the current year (6.8 percent of new spending) and $110 million for next year (1.2 percent of new spending).

"According to NATO figures, it would require an additional $13.6 billion in security and defence-related spending just to bring the proportion of Canada's GDP spent in these areas up to the NATO (European countries-only) average of 2.1 percent of GDP," notes Clemens.

Equally as disconcerting is the long list of "pet projects" announced since the October mini-budget:

  • $2 billion for the Strategic Infrastructure program
  • $1.1 billion for a series of education and research initiatives over the next 3 years
  • $562 million for cultural initiatives over the next 4 years
  • $502 million to develop Toronto's Waterfront
  • $500 million over 3 years for additional international aid
  • $260 million each for the Canadian Television Fund and for health research over the next 3 years
  • $255 million for affordable housing (2 years)
  • $125 million in additional green municipal programming
  • An additional $120 million for the CBC

No Tax Cuts but Tax Increases

The Budget also included moderate tax increases. Over the next 5 years, the federal government expects to collect $2.5 billion in additional tobacco taxes and $2.2 billion in user fees from air travellers. In addition, previously announced increases to the Canada Pension Plan premiums will also take effect, rising from 8.6 percent this year to 9.4 percent next year, and ultimately to 9.9 percent in 2003. "The tax increase arising from the CPP premium increases amounts to $2.4 billion next year alone," says Clemens.

A great stimulus opportunity has been missed given the presence of large surpluses in both this year and next. In fact, the new spending on security could have been completely accommodated while still allowing for tax relief in the amount of $4.8 billion in 2000/01 and $5.5 billion in 2002/03. These funds should have been used to finance the elimination of the corporate capital tax, an acceleration of the already announced corporate income tax rate cuts, and reductions in the top marginal personal income tax rate.

Conclusion

All in all this is an enormous missed opportunity. The government could have set defence and security spending on a rational and reasonable course so as to protect Canadians from aggression, both foreign and domestic.

"The Budget could have prioritised government programs, focusing on those things we actually need the government involved in, such as security and defence, while eliminating programs in areas where not only don't we need government involved but where it actually hinders productivity. Specifically, the government should have used the surpluses in both the current fiscal year and next to finance needed security spending and tax reductions," concludes Clemens.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver with offices in Calgary and Toronto.

For further information, contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582
Email suzannew@fraserinstitute.ca.