Are Laytonâ€™s Numbers Too Rosy?
Some coverage has suggested that the NDPâ€™s platform costing was based on excessively optimistic projections. The Globe and Mail reported, â€œLike the Liberals, the NDP is basing its fiscal plan on the Conservative governmentâ€™s 2008 budget projected surpluses, which are more than six months old and are widely believed to be too rosy in light of the economic slowdown in recent months.â€
Using the governmentâ€™s own fiscal projections focuses the debate on different policy choices, rather than on different forecasting assumptions/methodologies. Furthermore, it is far from clear that these projections are â€œtoo rosyâ€.
Budget 2008 forecast a $2.3-billion surplus for all twelve months of 2008-09. Finance Canadaâ€™s most recent Fiscal Monitor indicates that the government ran a $2.9-billion surplus in just the first four months. At that pace, the government would accumulate an $8.7-billion surplus in 2008-09.
A slowing economy during the balance of the fiscal year will presumably lower this amount, but the original $2.3-billion forecast looks fairly safe. Budget 2008 and the NDP platform anticipate an even smaller surplus, $1.3 billion, in 2009-10.
Another suggestion is that deteriorating corporate profits would undercut projected revenues from maintaining a 22.12% corporate tax rate. In particular, Terry Milewskiâ€™s CBC â€œReality Checkâ€ on the NDP platform emphasized this possibility.
The projected cost of the corporate tax cuts, and hence the savings from not implementing them, are from the 2007 Economic Statement.Â Notwithstanding a slowing economy and panicked stock market, the corporate tax base has expanded substantially since then.
Federal corporate tax revenues were up by 16% in July 2008 (the most recent month available) compared to July 2007. On an annualized basis, pre-tax profits in the second quarter of 2008 were 12% higher than in 2007. In other words, corporate profits could fall some distance from their mid-2008 peak and remain consistent with 2007 expectations.