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The Progressive Economics Forum

How Much Will the Tax Cuts Cost?

As Andrew, Bruce, Marc, Ish and others have correctly argued, last week’s Economic Statement wastes money that could otherwise have financed vital public programs.

Two tables in the Statement are critical to this case. Table 2.2 (page 45) estimates the costs of newly-announced tax cuts. Table 3.1 (page 73) estimates the costs of all tax cuts adopted since the Conservatives came to power. The difference between the two equals the tax cuts from Budgets 2006 and 2007, which also enacted the Tax Fairness Plan.

On the corporate side, for example, $6.1 billion is the cost of cutting from the previously-budgeted rate of 18.5% to 15%. However, $14.8 billion is the full cost of going from the current rate of 21% all the way down to 15%, chopping a point off the small-business rate, and eliminating the corporate surtax.

The Cost of Conservative Tax Cuts in 2012-13

(billions of dollars)

 

2006 and 2007

Budgets

2007

Statement

Totals

Corporate Income

$ 8.7

$ 6.1

$14.8

Personal Income

$ 9.7

$ 1.5

$11.2

Goods and Services

$ 7.1

$ 7.1

$14.2

Totals

$25.5

$14.7

$40.2

Almost all of the corporate-income-tax cuts from Budget 2006 and some of the personal-income-tax cuts from Budget 2006, Budget 2007 and Statement 2007 were cribbed from the Liberals’ 2005 Budget and Economic Update. The GST cut was an “all Conservative” initiative that the Liberals sort of opposed, but probably would not reverse.

The pie chart on page 72 of the Statement, which received significant currency in the press, suggests that the GST cut predominated and that corporate tax cuts were the least expensive part of the program. This picture is based on summing the six fiscal years from 2007-08 through 2012-13.

The two-point GST cut looks bigger because it will be fully implemented in 2008, whereas the corporate cuts will continue through 2012. However, the annual cost of the corporate cuts will ultimately exceed that of the GST cut. In other words, the program is less populist and more favourable to Bay Street than most reports implied.

Surpluses and hence debt repayment could still exceed official expectations. If so, the Tax Back Guarantee enacted in Budget 2007 ensures that personal-income-tax cuts will be costlier than projected.

When fully implemented, all of the Conservative tax cuts will cost more than the Canada Health Transfer and the Canada Social Transfer combined. Table 2.5 (page 56) projects that “federal transfers in support of health and social programs” will be $40.1 billion in 2012-13.

Had the federal government not adopted these tax cuts, it could instead have doubled its support for healthcare, post-secondary education, and social assistance. This point would be worth remembering next time someone claims that medicare is inherently unsustainable.

The 2007 Public Accounts (page 1.7 of Volume I) indicate that the combined annual expenditure of all federal departments (excluding National Defence and transfer payments) was $40.3 billion. Of course, this figure will probably be higher in 2012-13. Nevertheless, it is striking that the tax cuts will cost as much as it currently costs to run the Government of Canada’s entire non-military side.

Table 2.3 (page 47) of the Statement indicates that federal revenues will be $288.9 billion in 2012-13. The implication is that, without the tax cuts, federal revenues would have been $329.1 billion.

Put another way, the Conservatives have surrendered 12.2% (or nearly one-eight) of future federal revenues during their two years in office. Given another decade and a half at this rate, the Canadian state would disappear altogether.

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Comments

Comment from ferrethouse
Time: November 4, 2007, 11:11 am

wastes money that could otherwise have financed vital public programs

How do you know the money is wasted? It is my money and I get to keep more of it now. I guess you, like so many of your Liberal friends, think I’m going to blow it on beer and popcorn.

Comment from Erin Weir
Time: November 4, 2007, 7:33 pm

A cursory examination of this blog will confirm that I am no Liberal. In fact, the Liberals initiated many of the tax cuts in this mini-budget and allowed it to pass.

I wish that these tax cuts would allow ordinary Canadians to buy more beer and popcorn, but groceries are already GST exempt. A predominant share of the money will simply add to corporate Canada’s record-high profits, causing it to pay more tax to the US government instead. I do consider that to be wasteful, from a Canadian perspective.

Comment from Borbone
Time: January 28, 2009, 5:44 pm

American voted for Bush and suffered from a quickie pleasure fixed for the 1st few yr. The damage had already done would take years to repair. Now, Canadians are doing the same vote for Harper for his Tax cut schemes that would cost us sever pain later. Actually already happening.
If not that 2% GST cut, we may not fall into such a deep trap and may have a few tight budget to play around easing current economic hard time. What’s next, cut our health care to compensate the short fall by privatize it while American try model our universal HC system?

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