The Tories' high-tax plan

Monday’s federal budget was all political spin. Like in March, when the 2011 budget was first introduced, the Conservatives dubiously titled it: A Low-Tax Plan for Jobs and Growth.

But in reality, the Conservatives’ plan increases the federal tax take, increases government spending, and fails to provide a truly austere plan to balance the budget. It will, therefore, do little to improve economic growth and create jobs.

Indeed, a more fitting title for the budget would have been A High-Tax Plan for More Government Spending – not exactly the message the Conservatives want to send Canadians.

In keeping with the political spin, the government claimed it will “keep taxes low and take actions to foster long term growth.” Yet taxes are hardly low. This year, Tax Freedom Day, the day the average Canadian family has earned enough income to pay all the taxes levied on it by government, fell on June 6 (coincidentally the same day the Conservatives tabled their budget).  In other words, if we had to pay all of our taxes up front, we would have to send each and every dollar earned from January 1 to June 5 to government.

Unfortunately, this budget will not result in an earlier Tax Freedom Day as the total federal tax take is expected to increase to 13.4 per cent of GDP in 2015/16 from 12.8 per cent in 2010/11.

The most significant increase in the tax take comes through personal income tax revenues, which will increase to 7.4 per cent of GDP in 2015/16 from 7.0 per cent in 2010/11. While this may seem insignificant, revenues from personal income taxes will be up by $38.2-billion (33.7 per cent) over that period.

But the most worrying part of the Conservative plan is the government’s unwillingness to implement a more serious plan to balance the budget. The government is pinning its hopes for a balanced budget in five years on a combination of higher revenues and successfully slowing the growth in spending. Specifically, the Conservatives expect revenues to grow at a robust average rate of 5.6 per cent over the next five years while planning to hold program spending increases to an average rate of 2.0 per cent.

“The government’s plan for returning to balanced budgets is on track,” stated the budget. However, history shows that this Conservative government has had difficulty restraining spending. Even before the financial crisis and its massive stimulus spending, the Conservatives increased program spending by an average rate of 5.9 per cent.

Given the Conservatives spending record, it’s hard to see how the government will hold spending increases to an average rate of 2.0 per cent over the next five years.

The same approach did not work in the 1980s and early 1990s. Successive federal governments failed to balance the budget by trying to slow the growth in spending while hoping for higher revenues.

Rather than increase the tax take, a true low-tax plan would aggressively cut spending to balance the budget within two years. Once back in balance, the government could implement a multi-year plan to reduce personal income taxes. Even the Conservatives’ own policy document, Advantage Canada, acknowledges that “Canada needs lower personal income tax rates to encourage more Canadians to realize their full potential.”

While yesterday’s budget did not contain any major surprises, it unfortunately contained much of the same spin.