January 2001
Visions of Liberal Sugar Plums
Now that the mistletoe and wreath have been put away for another year, it may be time to recount some of the promises that the Liberals made in their pre-election mini-budget— at least, those we actually want them to remember. With luck, the excesses of the holiday season have sufficiently fogged the collective Liberal memory such that several of the mini-budget's less stellar announcements will be lost in the new parliament. (This may be wishful thinking as the Liberals have already announced that the October mini-budget will replace the normal submission of a spring budget.) Also with luck, perhaps the Liberals will discover a New Year's list of initiatives to which they did not commit in the mini-budget.
The most prominent announcement in last-year's mini-budget dealt with tax cuts. The Liberals promised a plethora of them for both individuals and businesses. It is worth noting several of the tax cut commitments, because they would be good for Canada's economy.
Principal among these is a further reduction in the inclusion rate for capital gains: from two-thirds to one-half. The additional reduction will bring Canada's capital gains tax rate in line with many of our competitors (other than those who don't have a capital gains tax at all), particularly that of our southern neighbours.
Equally importantly, the mini-budget will reduce all three existing statutory tax rates for individuals. The bottom rate will drop from 17 to 16 percent, the middle rate from 24 percent (already reduced from 26 percent in the 2000 Budget) to 22 percent, and, finally, the high-income rate from 29 to 26 percent. In addition, the Liberals will eliminate the high-income surtax. The rate reductions are an important step forward in reducing Canada's punishing level of taxes.
Unfortunately, the mini-budget also introduced a new, fourth statutory tax rate that would apply to incomes over $100,000 and would carry the previous top statutory rate of 29 percent. This is just one proposal that we hope is forgotten over the hectic holiday season.
As discussed in another article in this issue, the mini-budget also committed to speeding up the elimination of the tax differential between manufacturers and processors and all other corporations over the next four years. Let us hope that the federal Liberals have become more ambitious over the holidays, and decided to implement the initiative over a three-year period, or better still, over a two-year period.
Like a happy celebrant with an open chequebook, the Liberals announced a slew of new spending prior to the election, much of which we hope will be remembered foggily at best. The largest of the major spending announcements was $23.4 billion on health care. This includes $21.1 billion in direct transfers to the provinces over the next 5 years, $1.0 billion over 2 years for the purchase of modern technology, $500 million for information technology, and $800 million for a transition fund for primary care.
We suggest a New Year's resolution for the federal government: investigate restructuring Canada's health care system in order to achieve optimal health outcomes. Simply throwing more money at a problem rooted in the institutional arrangements that exist in health care will do little to alleviate its problems.
In addition to the announced health care spending, a number of other program areas also received additional spending pledges, including education, innovation, and the environment. The Liberals announced an additional $950 million to be allocated to innovation-related projects, bringing the total spent to date since 1997 to $2.4 billion.
Special-interest projects also littered the mini-budget's attention to the environment. In the last two budgets, over $1 billion has been committed to a host of projects including: Sustainable Development Technology Fund ($100 million), which is supposed to stimulate the development of new technologies; Green Municipal Enabling and Investment Funds ($125 million), which aim to help communities deal with such issues as renewable energy, waste management, and transit; the Climate Change Action Fund ($210 million); and the National Strategy on Species at Risk ($90 million).
Let's hope these program expenditures disappear like the batteries to your child's newest talking toy.
By discarding some of the programs driven by special-interests, and focusing more on tax cuts and prioritized spending, the re-elected government will achieve a lot for the country, and make next year's holiday season that much more celebratory.
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