March 28, 2021 | Rad

Three weeks out from the maiden Chrystia budget, the stats are toe-curling. The virus may be vanquished by the end of 2021 but the legacy will live on.

In other words, hide your money.

From April of 2019 until the end of that year Ottawa spent $10.6 billion more than it took in. That’s called the ‘deficit’, which is then added to the debt – so your children can grow up, find work and pay interest on it.

From April 2020 until three months ago – the same 10-month period – the feds spent $268.2 billion more than was collected. Yes, a 25-fold increase in the deficit. Never happened before. It pushed the debt to $1.09 trillion, a sum equal to half the economy. Also a record.

But here’s the thing: government spending nearly doubled (by two hundred billion) and taxes crashed (by forty billion). CERB payments alone topped $75 billion, with tens of billions more for enhanced child pogey to families, payroll subsidies and pandemic loans to businesses plus a bail-out for cities.

So we’re on track for a full-year deficit disaster in the $350-billion range. Will this hemorrhaging stop? Will spending be slashed as the virus recedes?

The prime minister has said otherwise. Covid is an opportunity to build back better. The budget will, he’s stated, among other things address wealth inequality, set aside up to $100 billion for new initiatives and be ‘feminist’. On the spendy side of the ledger there’ll be a whole lot of new money for health care (the provinces demand it) and the climate change/green agenda. A UBI is unlikely (too radical and expensive) and no government is going to start taxing house profits (yet).

Business taxes can’t really be increased, since the virus pretty much wiped out Main Street and crippled some economic mainstays like travel, hospitality and tourism. So the Libs will go after the WFH online giants, the financial sector and others that have done well because of Covid. Plus you.

Some moves which have been actively debated:

• Ending OAS universality.
• Implementing the 10% luxury tax on cars, boats, RVs and other consumer items selling for a hundred grand or more.
• A wealth tax of 1% on family assets of twenty million plus, as the NDP demands.
• An extra percentage point on the GST/HST to help pay for the CERB.
• Scaling-back RRSP contribution limits, which most benefit high-income earners.
• A super-tax bracket for those making over $400,000 a year.
• A hike in the capital gains inclusion rate, from 50% to 66% (or more).
• A speculation tax on vacant residential property.
• Changes in stock option treatment to eliminate deferred tax.

But even if all of these things were to occur, they’d not reduce the deficit by half. It would take something drastic – like the entire elimination of new RRSP contributions or the elimination of OAS payments – to really move the needle.

Why?

Because we have an unsustainable system.

Four in ten households pay no net tax, since their government benefits exceed obligations. Meanwhile the ‘income inequality gap’ critics decry is probably smaller than it appears, once a growing tax load is deducted from the cash flow of those who foot the bill. It’s fashionable to say, as our prime minister did, that government “must find additional ways to tax extreme wealth inequality.” But is this realistic?

Well, figure it out.

There are but 764,000 people (of 38 million) who have taxable assets of a million to five million. To be in the top 1% of income-earners requires an income of $234,000, and the average is $477,000. The top marginal tax rate for them is 53%, and they number just 277,695. Already the top 10% of income-earners pay 55% of all taxes. So the other 90% finance the remaining 45%. Recall that four in ten pay nothing, net of benefits. By the way, Canada has only 41 billionaires. Most of their wealth is tied up in corporations which employ a few million people, and pay corporate levies.

So do we really have a tax problem, or a spending issue?

The past year of virus, pandemic, lockdowns, quarantines and upheaval brought new distortions to our nation. Public finances are a mess. Politicians are ricocheting between achieving equality and social justice and staving off a fiscal crisis. You can’t do both. Meanwhile there are too few rich people around to Hoover.

So perhaps the budget could be radical this time. It could tell the truth. What a moment in history that would be.

Garth Turner March 28th, 2021

Posted In: The Greater Fool

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