The Northern Tiger Needs Some Teeth

By his own admission, Federal Finance Minister John Manley will be “forced” to dip into this year’s rainy-day fund to cover unexpected government expenses. The economy, the threat of Mad Cow disease, SARS, a strong Canadian dollar, Afghanistan, Iraq, and the United States’ economic woes were all cited as contributing factors to Canada’s slowing economic growth.

However the real underlying problem has proven to be the federal government’s spendthrift habits and a lack of sound economic planning to absorb the inevitable hurdles.

The slumping U.S. economy and ongoing tensions in the Middle East should come as news to no one. And while it is nearly impossible to predict specific catastrophic events like SARS or Mad Cow, the federal government should have had crisis plans in place to reduce the economic fallout should the unexpected occur.

Given our heavy reliance on the U.S. economy, the government’s failure to take into account the slowdown in the United States was particularly inexcusable.

Yet, the response was to shrug off all the uncertainties, proclaim our country “the Northern Tiger” and bring on the massive spending increases.

The Liberal’s increased their program spending by 11.5 percent in 2002. The 2003 budget further increased program spending by 3.2 percent and 4.6 percent for this year and next. In the end the Liberals will have cranked up spending by over 20 percent in just four years.

Why is this a concern? Gross Domestic Product -- the key measure of our national income -- is expected to grow just over 10 percent over the same period. Thus, spending by the federal government is recklessly outstripping the growth in our national income.

Couple that with data from the Organization for Economic Cooperation and Development (OECD) which shows Canadian governments spending roughly 38 percent of our national income while American governments consume only 32 percent of theirs and our economic future becomes more than a tad concerning.

The increasing size of the Canadian government will put Canada at an ever-greater disadvantage and decrease the likelihood of attaining our goal of becoming a real economic tiger. Economic research shows that jurisdictions that continue to tax and spend a growing portion of their economies will experience lower rates of economic growth, and less prosperity.

The recent tax cuts by the Bush administration in the United States will lower marginal personal income tax rates, and reduce dividend and capital gain taxes. On one hand these cuts will be a positive force for Canada, as they will substantially increase economic growth in the US and as a result help our economy.

On the flip side however, it leaves Canada at a serious competitive disadvantage in terms of wealth creating entrepreneurship and investment. Lower investment is, of course, bad for Canadians at all levels of income as investment in capital increases productivity and therefore our wages and salaries.

While Mr. Manley understands the benefits that tax cuts bring, he feels now is not the time for Canada to follow the United States’ lead. Last week, while speaking in Toronto, he stated he was glad that the US was providing stimulus through reduced taxes, as a booming US economy would surely benefit Canada.

On the other hand, the reason he provided for not cutting taxes in Canada was that he did not want to risk going into deficit. The federal surplus, however, was $6.3 billion last year, allowing plenty of dough to cut taxes without going into deficit. In addition, the federal government has run surpluses for the past six years totaling $37 billion. Clearly, Mr. Manley could provide Canadians with tax relief without risking a deficit.

Canadians need the federal government to follow the American’s lead. We need tax cuts and fundamental tax reform. Our personal income tax rates are still much too high, as are our business taxes. In 1993, the year the Liberals took office, our Tax Freedom Day -- the day Canadians finish paying the total tax bill imposed on them by government -- arrived on June 10. This year Tax Freedom Day arrived on June 28, more than two weeks later.

Mr. Manley, the path towards improved prosperity, characterized by rising incomes, increasing employment, heightened opportunities, and greater wealth creation comes through giving Canadians the tax relief we desperately need. This approach has been demonstrated in many countries around the world including Ireland and the United States, and right here at home in Alberta and Ontario. Put the excuses away and set Canada on a path towards becoming the true Northern Tiger.