It is comforting to know that Kevin Page's crystal ball is so crystal clear. I prefer that all my budget officers have the gift of foresight to predict the unpredictable. For example, "Mr. Page said there will be a structural deficit of $18.9-billion in 2013-14, which is the period when Ottawa expects to be narrowing in on a balanced budget". His strong recommendation is to raise taxes to avoid this supposedly unavoidable fiscal shortfall.
There are some serious flaws in his forecast model. The entire thesis is built on top of GDP predictions, which he believes will experience declining growth because our population is getting older. He may very well be correct that our workforce will become less productive, but I hardly see how raising taxes on pensioners with fixed incomes is the solution to the problem. The efficiency of our labour force is not the key variable on which Canadian GDP is dependent; what has the biggest effect of all on our GDP is global resource prices.
It is impossible to reliably predict what the price of a barrel of crude will be 5 years hence. Commodity prices depend on a delicate balance of supply and demand, neither of which can be reliably predicted. If there is a supply disruption from the Middle East and oil goes back to $150, Ottawa will not be running a deficit. When Obama starts withdrawing troops from Iraq, do we expect that to proceed smoothly? There is deep unrest in Iran these days, with the Iranian military also conducting operations over the Iraqi border.
Even if supply stays constant, we cannot predict demand that far in the future. Even Nostradamus himself never attempted to predict commodity prices. What we use in production and consumption changes and evolves over time. The evolution of technology has been rapidly increasing in the last decade, and how much of each commodity we use in the industrial process can only be guessed.
The other problem with guaranteeing "structural" deficits 5 years hence is that we write a new budget every year. The structure is always changing. Is the thesis that it is impossible to reduce government spending? It is certainly more difficult to reduce spending in a minority parliament, when the opposition turns on every possible spending cut under ominous spin of government stealing something from Canadians.
Why is it that these parliamentary budget officers seem unanimous in their belief that raising taxes is the only way to avoid a deficit? Is it a coincidence that someone employed by the Government of Canada does not want government to reduce spending on government? I would rather cut Kevin Page's salary than pay more for beer and popcorn. Consumption is the beating heart of economic activity, and when you raise consumption taxes people spend less money. Fewer consumer products move off the shelves, lowering demand from the factory, decreasing the demand for labour.
I don't appreciate bureaucrats telling me that we can't reduce spending in our bureaucracy. It is self serving.
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cut spending
ReplyDeleteI heard Flahrety's predictions then I heard Page's predictions and I find Flahrety's predictions much more plausible. When the economy rebounds government revenue goes up and deficits go down. When taxes go up the economy goes down and deficits go up.
ReplyDeleteInteresting to note that in 2007, he predicted a $3.2 structural deficit while Harper and Flaherty were predicting a $13.8 billion surplus. The difference? Their estimate of the GDP. So yeah, I'd trust a non-partisan Harper appointee over a PM who said we would never have a recession or a deficit and has shown he will say anything and do anything to keep power and couldn't predict rain in the middle of hurricane.
ReplyDeleteBut I'm curious. You've claimed Page makes a "strong recommendation to raise taxes" and that he believes "raising taxes is the only way to avoid a deficit".
I did a search. I did not see anywhere where he says taxes should be raised. I did not see anywhere where he says spending should not be cut. In fact, I don't see him making any policy recommendation whatsoever. As he has said countless times, his job is analysis not solutions or policy.
Maybe I missed it though. Could you show me where he makes any recommendation at all? I mean, surely, if you are going to be so outraged you have some facts to base your outrage on? Because otherwise one might conlcude you are being the good little Harpermaniac and just attacking the messenger because he dares to say something contrary to what Harper would want him to say.
Thank you for the question Ted. My post was based largely on his forecast model, not individual statements. His model calls for growth in government spending when EI expenditures should be diminishing. And in one of his reports Mr. Page wrote:
ReplyDelete“The decline in the government’s structural balance relative to potential income over this period is largely due to lower revenues,” says the PBO report, titled Estimating Potential GDP and the Government’s Structural Budget Balance.
“Statutory corporate income tax and GST rate reductions push the projected level of structural revenues relative to potential income close to their lowest level since 1976-77.”
Ergo, to fix the problem of a higher deficit, we need to raise taxes. I'm not sure what other conclusion you could reach. Do you think it will be popular with Canadians when Ignatieff takes the position that we need to increase the sales tax? Because that's what Mr. Page is saying.
In terms of who made what predictions in 2007, I'll look into it. But I have always maintained the position that GDP predictions are inherently flawed.
"Ergo, to fix the problem of a higher deficit, we need to raise taxes. I'm not sure what other conclusion you could reach."
ReplyDeleteDecrease spending. Wait for economic performance to rise. Sell assets. Lots of ways to fix Harper's structural deficit.
Again, he is just analyzing how we got to where we are. Giving us an objective and independent assessment, not tinged by polical ambition. It is pretty simple math: increase spending, cut taxes and presto you have a deficit. And that was all pre-recession.
He is not suggesting how to get out of that, and certainly not only taxes.
He spends as much time talking about the increases in spending and the lack of a corresponding revenue base to support the biggest spending government in our history.
He is silent on what to do about it and clearly there are 3 ways to go: increase revenue (increased taxes is one but only one way to increase revenue), decrease spending, do nothing.
But back to your statements. You've claimed Page makes a "strong recommendation to raise taxes" and that he believes "raising taxes is the only way to avoid a deficit".
So were you just making that up or did you read somewhere where he made a recommendation.
Any time we add long term jobs to the economy the government already gets more taxes through income tax alone.
ReplyDelete1500 net new jobs added at $100,000 / %15 inc-tax = more $$$ for gov.
Hence, no need to raise taxes but rather create an environment for business (and thus jobs) to flourish in a healthy and stable manner.
Raising taxes don't help but hurt and lowers everyones average quality of life. Better to first cut spending. Then if the need is dire (it isn't) marginally raise the broadest broad base tax. The type of tax that hits everyone on but by miniscule amounts.
Fortunately there is no need to raise taxes at all in our situation. Reforming the tax code and modernizing it would be preferable while lowering them. Not something possible during a minority with these sorts of opposition parties that are pro-tax & spend socialists.
Hopefully Ontario will someday stop raising the minimum wage at a pace that continues to leave business taxes out of balance.
It is often always better to lower income taxes than to raise the minimum wage forcing business to lay off people or not hire more workers when they should and want to.
Again Ted, thank you for your interest in my work. You are now dissecting semantics. At no point did I actually write that Kevin Page said that raising taxes was the only way to eliminate a deficit. I was making a broad generalization about bureaucrats, and I know a lot them. If it will please you, I will change "these parliamentary budget officers" to "these parliamentary bureaucrats".
ReplyDeleteAnd Kevin Page has made several recommendations to raise the sales tax. I didn't just make that up.
http://www.financialpost.com/news-sectors/economy/story.html?id=1764018
Ted, did you try typing "Kevin Page GST" into Google? There are 81,000 sites you can visit.
ReplyDeleteSure. He's suggesting the most painless way of balancing the books is to increase the GST. But he is certainly not making a strong recommendation and he is certainly not suggesting it is the only way, in fact just the opposite.
ReplyDeleteAnd he's right. And almost every economist would agree. And a certain conservative Minister of Finance, to boot.