COLUMN: Commentary on leading a tax-cut led recovery

Pie-in-the-sky, government-directed stimulus is enormously expensive, and simply doesn’t work

COLUMN: Commentary on leading a tax-cut led recovery

By Aaron Wudrick,

Federal Director – Canadian Taxpayers Federation

The focus on the federal deficit has rightly been on the staggering scope of emergency spending, but there has been much less talk about the other big part of the equation: government revenues have plunged due to the economic shutdown.

Indeed, the federal government’s July fiscal snapshot revealed that the government expects a steep drop in both personal and corporate income tax revenues, along with the catchall category “other revenues” which account for a whopping $71 billion of the projected $343 billion deficit.

Suffice to say this is a big problem.

In pre-pandemic times, the Trudeau government could have balanced the budget relatively easily with some modest spending restraint. But now, even deep cuts would not be enough to close the gap unless revenues also rebound in a big way.

In the early days of the pandemic there was talk of a so-called V-shaped recovery whereby pent-up demand might actually lead to a mini-boom once people were allowed to return to something resembling their pre-pandemic routines. It’s now clear that’s unlikely, as fear of COVID-19 has only grown, making people worried and uncertain of what is to come next.

What we need, then, are policies that can mitigate or offset this phenomenon and provide extra incentive for people to go back to work, reopen or start a business, or spend money.

Traditionally, governments have resorted to stimulus spending – essentially borrowing money and spending it to boost economies.

This approach has been enormously expensive and mostly hasn’t worked, meaning the government would be well advised to try a different tack.

Trudeau and his new finance minister, Chrystia Freeland, have both recognized that raising taxes would be a bad idea.

At his first press conference following Freeland’s appointment, Trudeau was asked point blank whether taxes would be going up. His response was unequivocal: “No. The last thing Canadians need is to see a raise in taxes right now.”

Trudeau should extend that line of thinking. If higher costs would be bad for the economy, wouldn’t lower costs would be good for it?

In other words, it might be the right time for the government to consider a tax-cut led stimulus.

At first blush, this might sound counterintuitive: why sacrifice more revenue at a time when you are already short? Yet if there is a general consensus that the economy needs some type of stimulus, why would leaving more money in people’s pockets necessarily be a worse option than sending more (borrowed) money out the door?

Indeed, there’s a strong case that those with actual skin in the game – businesses – are much better placed to know where money is being invested, as opposed to politicians and bureaucrats who pay no price for being wrong.

A tax-cut led approach would effectively empower thousands of businesses across the entire economy to deliver ‘stimulus’ as opposed to a small cabal of political decision makers.

Small businesses in particular have been hard hit by the pandemic.

What if the government was to temporarily eliminate the nine per cent small business tax rate for two years? For larger businesses, a reduction in the business rate from 15 per cent to 10 per cent would go a long way to helping them recover.

On the income tax side, cutting every income tax bracket by even one per cent would put up to $8 billion back into the pockets of Canadians at a time when they could most use it to spend at local businesses and rebuild their battered personal finances.

The bottom line is that tax cuts are more fair than picking winner and losers, and is not subjected to the same capture by politically-connected industries looking for special treatment.

Yes, it may come at a cost of reduced revenue in the short run, but revenues are down anyway so that cost will be much lower than it would be in normal times.

And so long as tax cuts are paired with even larger spending cuts, the deficit can still shrink.

Indeed, the unstated assumption that cutting taxes inevitably costs revenue doesn’t always hold in the medium term because lower taxes can result in more businesses turning a profit and more people earning income. That growth leads to higher overall tax revenues.

Pie-in-the-sky, government-directed stimulus is enormously expensive, and simply doesn’t work.

Instead, the Trudeau government should put more money back into the pockets of Canadians and let them spend and invest it in our economy.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Stettler Food Bank is well stocked after generous donations during the holiday season. Contributed photo
Slight increase in demand at the Stettler Food Bank over recent weeks

The Stettler Food Bank is located in the basement of Stettler’s United Church

Sign
The Stettler Pheasant Festival reflects on community impact

The festival has seen people visit from all over western Canada and into the United States

Stettler’s Rob Docherty has been named to the Alberta Provincial Trapshooting Association Hall of Fame after over 30 years of competition. 
photo submitted
Rob Docherty is being inducted into the Alberta Provincial Trapshooting Association Hall of Fame

Docherty was also the Stettler Trap Club president for 25 years

Alberta’s chief medical officer of health, Dr. Deena Hinshaw, confirmed eight additional virus-deaths Monday afternoon including one in central zone. (Photo by Chris Schwarz/Government of Alberta)
Central zone up to 1,249 active COVID-19 cases

Red Deer sits at 257 active COVID-19 cases

Idyllic winter scenes are part of the atmosphere of the holiday season, and are depicted in many seasonal movies. How much do you know about holiday movies? Put your knowledge to the test. (Pixabay.com)
QUIZ: Test your knowledge of holiday movies and television specials

The festive season is a time for relaxing and enjoying some seasonal favourites

A logo for Netflix on a remote control is seen in Portland, Ore.,Aug. 13, 2020. Experts in taxation and media say a plan announced Monday by the government will ultimately add to the cost of digital services and goods sold by foreign companies. THE CANADIAN PRESS/AP-Jenny Kane
‘Netflix tax’ for digital media likely to raise prices for consumers, experts say

The government says Canadian companies already collect those taxes when they make digital sales

Gaming content was big on YouTube in 2020. (Black Press Media files)
What did Canadians watch on Youtube during isolation? Workouts, bird feeders

Whether it was getting fit or ‘speaking moistly,’ Canadians had time to spare this year

A teacher places the finishing touches on the welcome sign at Hunter’s Glen Junior Public School which is part of the Toronto District School Board (TDSB) during the COVID-19 pandemic in Scarborough, Ont., on Sept. 14, 2020. THE CANADIAN PRESS/Nathan Denette
Hindsight 2020: How do you preserve a year many Canadians would rather forget?

Figuring out how to preserve the story of the pandemic poses a series of challenges

Team Manitoba celebrate after defeating Team Ontario to win the Scotties Tournament of Hearts in Moose Jaw, Sask., Sunday, Feb. 23, 2020. Curling Canada wants Calgary’s Canada Olympic Park to be a curling hub for the season’s top events. THE CANADIAN PRESS/Jonathan Hayward
Calgary facility set to become curling hub during pandemic

Curling Canada has provisional approval for Calgary’s hub-city concept from Alberta Health

Ash and Lisa Van carry a freshly cut Christmas tree while wearing personal protective masks at a Christmas Tree Farm in Egbert, Ontario, Sunday, Nov. 29, 2020 THE CANADIAN PRESS/ Cole Burston
‘Everyone wants a tree and they want it now’: Christmas tree sales on pace for record

Anticipated demand for Christmas trees has sparked a rush by some to purchase more trees wholesale

A scene from last year’s Light the Night fundraiser at the Stettler Town and Country Museum. This year’s rendition is on a drive-through basis only, but it still promises to be a not-to-be-missed seasonal highlight. (Independent file photo)
Stettler Town and Country Museum hosts ‘Light the Night’

This year’s rendition is drive-through only, but will still prove to be a dazzling display

(Black Press File Photo)
Rimbey woman gathering Christmas gifts for seniors at Valleyview Manor

Margaret Tanasiuk says she doesn’t want anyone to feel forgotten on Christmas morning

Most Read