Are Layton’s Numbers Too Rosy?

Some coverage has suggested that the NDP’s platform costing was based on excessively optimistic projections. The Globe and Mail reported, “Like the Liberals, the NDP is basing its fiscal plan on the Conservative government’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.”

Using the government’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 “too rosy”.

Budget 2008 forecast a $2.3-billion surplus for all twelve months of 2008-09. Finance Canada’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 Milewski’s CBC “Reality Check” 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.  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.

4 comments

  • They are speculating to stir a pot as what Layton is suggesting is exactly what main street kitchen table folks want in this financially uncertain times. The pictures on the globe online last night and today, show people with signs – save main street not wall street, out of war and so on.
    The masses have many more votes than the few who are losing their shirts right now.

  • What I loved was the contrast today between an RBC economist who says a defiict would be good for the economy ( he must have taken a macro course, or remembered what he learned in Econ 101) and the Liberal debate team, made up of Martin deficit hawks who want to toast Harper for noting managing the surplus properly. So the RBC is to the left of the Liberals on the economy.
    The NDP tries to play the no deficit game. for political reasons, but it does no long time good to buy into that kind of logic, when it makes no economic sense.
    I prefer borrow and invest to a carbon tax and income tax cuts, or a no deficit stand. Debate the Tories on militarization of spending, and neglect of assuring collective risk through cutbacks to social spending.
    The NDP should stand up for public credit creation, particularly now when the whole world can see what happened when monetary creation was ceded to the private sector, and a shadow financial system developed that is now bankrupt and caused unending problems for real people.

  • Thank you Duncan.
    Your latter point is particularly important.
    If for political reasons the discussion needs to be postponed till after the election, it is important that at some point the public dialogue does happen.
    My understanding is that ‘the market’ would visit substantially more painful shocks upon real people if public money creation was close to implementation, and if the people do not understand what is going on, they will succumb.

    best wishes,
    Leigh

  • To clarify, however, I don’t think it’s a ‘shadow’ financial system, it’s quite mainstream.

    The problem is that discussion of public money creation options seems to be limited to retirees and ‘fringe’ groups in Canada, whereas these have been mainstream proposals in US history. It’s unfortunate. Many NGO’s and parties seem to have chosen not to talk more about these options until critical mass is reached amongst their funders, that is, we the people. A bit of a chicken-and-egg cycle. It’s hard to believe they don’t actually get the concepts.

    In any case, some form of public money creation, for social programs, infrastructure, etc., is a tool that shouldn’t be ignored.

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