When Michael Wilson introduced the idea of a regular timetable for Canadian budgets in 1986 (generally, in February of each year), he was merely trying to be collegial toward his provincial counter- parts: since governments in Canada shared a March 31 fis- cal year-end, he was trying to create a process whereby provincial ministers of finance could have as much notice as possible of the impact of federal budget measures, and the benefit of the federal Finance Department’s view of the eco- nomic outlook, before they presented their own fiscal initia- tives and projections for the coming budgetary cycle.
At the time, it was common for Finance officials (gener- ously, or recklessly, depending on your point of view) to offer a five-year outlook for the fiscal framework. Finance’s estimates of budgetary balances (first the deficit and, later in time, the surplus) were often wildly erratic by the time the end of the fiscal period rolled around, never mind the fourth or fifth fiscal period. It became a joke, or a scandal (depending on your point of view), that Finance’s estimates were so far out of whack.
Because the budgetary forecast is so intimately tied to the economic assumptions underlying every prediction (growth rates, interest rates, exchange rates, to name a few), and fiscal update in October or November of each year. This enabled Finance to recover some credibility by revising pre- viously issued forecasts in light of specific developments described and analyzed in the mid-year review.
All of which was the steady state until Canada began to elect minority governments. Under the Conservative minority, the issue of electoral preparedness began to dic- tate strategy. If you can’t count on the support of at least one of the three opposition parties to approve the budget and avoid a general election, each budget needs to be an electoral platform in embryo, one you could run on if the opposition pushed you into it.
Thus, in a desire to have something attractive to run on, each of the first two Conservative budgets was supremely attractive in electoral terms. In the May 2006 budget, the government chose a Christmas-tree approach by allocating much of its fiscal manœuvring room (after debt reduction) to matters broadly supported by its core vote: the $100-per-month child tax benefit allowing parental choice in providing care for children, a credit for fees incurred in sporting or other physical activities, a tax credit for using public transit. The GST was reduced by one percentage point, the general corporate tax rate and the lowest per- sonal income tax rates were reduced. Significant sums were spent on polic- ing, border security and public safety as well as on rebuilding the armed forces, and $3.3 billion was devoted to addressing the so-called ”œfiscal imbalance” with the provinces.
It worked. The attractive budget was passed by the minority Parliament. Having blown a significant part of the wad to prepare for the worst, the Conservatives remained in office and had to present a second budget.
In the budget of March 19, 2007, the emphasis turned to mammoth expenditures on clean air and water, reducing greenhouse gases and com- batting climate change as well as measures to reward provinces which address the issue of a patient wait times guarantee. On the taxation front, the general corporate tax rate was further reduced and generous incentives put in place to encourage business investment in machinery and equipment. For individuals and families, there was the working income tax benefit to eliminate the ”œnotch” that unduly penalized low- income Canadians by taxing back earnings, an end to the ”œmarriage penalty” by raising the spousal or equivalent exemption, the introduc- tion of pension income splitting, resetting to 71 the age at which RRSP contributions had to cease, an increase in the maximum annual contribution to registered education savings plans, an enhancement to the age credit and so on.
Again, the government failed to engineer its own defeat by spend- ing so much and forgoing so much revenue that it became ever more difficult to follow its own act. What could they possibly do in Budget 2008 to top the taxpayer/voter-friendly measures of the first two?
That issue seemed to be moot as the date for the economic and fiscal update approached. ”œWe might never get to a third budget” was the conven- tional wisdom. Let’s pull out all the stops on October 30, 2007, because ”œWhat have you done for me lately?” would be the ballot question.
So when the Minister rose to give what came to be labelled his ”œeconom- ic statement,” he had the most broad- ly based tax relief up to that point in the mandate to announce. He cut the GST by a further percentage point, fur- ther reduced the corporate tax rate to as low as 15 percent by 2012 and cut the lowest personal income tax rate to 15 percent, while raising the basic per- sonal exemption to $10,100 by 2009 and slashing EI premiums for both employers and employees.
Once again, such obviously pop- ular measures induced the opposi- tion to avoid finding reasons to defeat the government on any mat- ter involving confidence. The gov- ernment was newly aggressive too. Having become emboldened, and correspondingly more effective, by enunciating its agenda in the Speech from the Throne two weeks earlier and declaring the speech itself and each legislative initiative flowing from it to be matters of confidence, it was challenging the opposition to bring it down and precipitate an election. If the tactic resulted in an election, better to have these attrac- tive measures out there for people to see and vote to retain.
But there was no election. By the time we got to Budget 2008 on February 26, the economy was at risk of a downturn and the era of large, unspoken-for surpluses was over. So the government had to content itself with less costly, but nonetheless politically seductive, initiatives such as new money to hire and train an additional 2,500 police officers, to improve funding for student grants and loans and to establish a variety of scholarships and university chairs. The big blockbuster was the establishment of the tax-free savings account, to enable Canadians to supplement their savings for any pur- pose while avoiding tax on the gain or income from money placed in this new vehicle. Also, the gas tax fund was made permanent, new Crown corporations were established to deal with public-private partner- ships and the EI system, the acceler- ated capital cost allowance on machinery and equipment was extended and seniors receiving the guaranteed income supplement would hereafter be able to earn up to $3,500 before any reduction in state assistance. There were modest amounts of money for veterans, men- tal health and Aboriginal programs.
You could run on such a budget, but they didn’t have to. The Liberals promptly declared that there was not enough in the budget to force an unwanted election on Canadians. The Conservatives adopted the mantra that they had anticipated the economic slowdown way back in October and acted early to provide tax relief then to stimulate the econ- omy. It all helped to sell a not dis- agreeable but not particularly aggressive budget. The fiscal projec- tions revealed all: more had not been done mainly because the cup- board was bare. It made a virtue of making the economic statement the real budget and this time there was no election not because the budget was so overwhelmingly popular but because it was so overwhelmingly modest.
So the budget and the economic statement have exchanged roles this fiscal year because of the exi- gencies of electoral strategies. If this were the worst that minority gov- ernment had thrust upon the nation, it would be neither tragic nor irreversible. But there is more. Private member Dan McTeague introduced Bill C-253, making regis- tered education savings plan contri- butions deductible. This flies in the face of all of the great traditions inherited from the Mother of Parliaments at Westminster, namely that a money bill can be introduced only by the government.
This is an aspect of our minority Parliament which is far more danger- ous: the combined opposition not defeating the government on any mat- ter of confidence, but undermining the fiscal framework set by the govern- ment to the point where Canada could once again be driven back into deficit. Faced with the dilemma of preventing such an outcome but appearing to resist a measure to help save for educa- tion (motherhood and apple pie to the very constituency that loves the Tories), Finance Minister Jim Flaherty hit upon an expedient to fight back. He added to the budget implementa- tion legislation a provision that would repeal McTeague’s measure if it ever became law. The budget implementa- tion bill is indeed the quintessential matter of confidence, so the Liberals, having already said they would not bring the government down over this budget, were in the position of voting to repeal a provision introduced by one of their leading lights and for which they voted at all three readings. The strategy was successful, and the ways and means motion effectively killing the RESP initiative was passed, 124 to 87.