Budget snippets 2006

The first Conservative budget since the Mulroney era is a revealing document.

The decision to cut the GST coupled with higher spending for defense and some tax cuts for individuals yields a budget that looks like the Government anticipates higher unemployment and slower growth in the months ahead.

In most respects its a very conservative document that continues the foolish decision to reduce the ratio of the debt to the GDP to 25 % in the coming years through paying down debt with built in surpluses at year end rather than simply allowing the ratio to shrink naturally over time as the GDP grows and the budget remains in balance. The latter would allow for billions more to be spent on either capital investments in education, health care, the military or urban infrastructure and if appropriate if a recession were to strike additional tax reduction for the lower and middle income groups.

There is a total of 14 billion dollars of debt reduction through allocation of the surplus over the years 2005-2008. During the same period net program expenditures are budgeted to fall by 9.0 billion dollars and taxes to fall by 26.2 billion dollars. Many of the tax cuts were part of earlier Liberal budgets.Total program spending is scheduled to fall to 13 % of the GDP and the debt to GDP ratio to 25 % by 2013/14, assuming no major recession results from the Bank of Canada`s strict interest rate regime.

Day care using parents and first nations peoples are big losers in the budget.The 5 billion dollar agreement negotiated with the first nations and with the support of all the provinces has lost its funding and the Liberal government`s day care program has been similarly axed. Its replacement is a much less generous scheme that is subject to tax clawbacks and will do little to help parents get their children quality day care. Some parents will appreciate the extra cash they receive but after taxes and the rising cost of inadequate spaces in   daycare become clear they are not likely to be very pleased about it. A much better idea would have been to keep the old program and add the new program on as an alternative to those parents who preferred it to day care.  

The government expects unemployment to rise to the privately forecast rate of 6.6 % from 6.3. If we are unlucky it might rise higher as the near parity Canadian dollar cuts into the tourist industry, and the export industry in manufacturing.

One could achieve almost as good results on the debt front but superior results on the employment and well being front by lowering interest rates and spending the projected surpluses on investments which would stimulate the economy and enrich the capital endowment of the country.The overall unemployment rate would be lower, government tax revenues higher, the growth rate faster and the debt to GDP ratio very close to the projected result.

More about this later.