Budget and Other Alternative Ideas for Ottawa to Help the Post-COVID-19 Canadian Economy Soar

Commentary, COVID-19, Economy, Ian Madsen

The federal government is preparing a budget to be unleashed upon the public and the financial markets, sometime in March. Aside from being terrified at the prospect of a huge amount of debt being taken on, yet again, by our erstwhile servants on Parliament Hill, there is hope that they may take a more creative, constructive and growth-generating approach. Well, we could dream.  

Here are some ideas that would not just ameliorate the current economic malaise, but foster the conditions that could permanently improve our lacklustre economic growth rate. These ideas could increase average personal income, improve living standards and enhance the federal government’s ability to, eventually, pay down the escalating mountain of debt it is gleefully accumulating.

1. To encourage hiring and employment, reduce the costs of hiring to the employer and raise the net income that employees receive by reducing income tax and other deductions on the first $20,000 of income. The other principal deductions are Employment Insurance and Canada or Quebec Pension Plan contributions by both employer and employee.  

This has economic logic to it, in that it reduces the wage wedge; that is, the gap between what value the employer believes he or she is getting from the total cost of hiring (which does not even incorporate training, supervision, absenteeism, sick time and other things) versus what the employee sees on his or her paycheque after all the deductions. This does not include other costs and issues, such as travel costs and commuting time, cost of hiring daycare or babysitters, work clothing and cleaning thereof and more.

It is not entirely clear what this wage wedge or deadweight cost of government is per employee and it varies by industry, sector and level of employment. However, a good or precise estimate does not have to be made to give credit of, say, one or two dollars per hour worked to each employee and employer to offset this and to encourage hiring and seeking of jobs. This credit would be netted against EI, CP/QPP and income tax until exhausted, to a maximum of say, $2-3,000 per employee per annum.

2. Begin a process of divestment of federal Crown corporations. Canada Mortgage and Housing Corporation, BDC, the CBC, Canada Post, Canada Lands, EDC and the CCC have book values totalling nearly $100 billion (see FCCP valuation studies) and constitute unnecessary risks to Canadian citizens. Their sale proceeds could make a dent in the public debt. They need to be put on an entirely commercial and independent footing first, which will take some time. Divestment of these entities will also help make the Canadian economy more dynamic, just as the sale of Air Canada, Telesat Canada, Petro-Canada, Canadian National Railway and other firms helped to do.  From start to public trading of shares can take several years, so this needs to begin soon.

3. Suspension of the GST for the rest of the year. Yes, this will lose Ottawa tens of billions of dollars. It will also foster demand, which will generate income tax from businesses and employees of those businesses. Only reintroduce the GST gradually.

4. Allow firms that are losing money to sell their pre-tax losses to profitable businesses that can use the credits against their taxes owed. This will help both parties. This could become permanent.

5. Cut personal and corporate income taxes in half, or more, for the rest of the year. This will create a great boom in economic activity which will survive the revival in tax rates. Base pre-tax corporate income on free cash flow, rather than conventional operating income, to encourage productivity-enhancing capital investment, increasing living standards, which will also have a multiplier effect on job creation and ancillary business revenue generation.

6. End any and all discussion or introduction of a wealth tax. All such taxes globally have generated little tax revenue, encouraged tax avoidance and evasion and deferral of recycling of capital gains into new business and construction ventures. These taxes have made the places implementing them far less attractive to retain or attract high-income individuals and investment, harming long-term growth and economic viability.

7. Refund the government at very long maturities at these record-low interest rates. When Ottawa can borrow at two per cent for 30 or more years (50 or more is available), when inflation and interest rates may bounce higher than that within one year from now, as many financial market participants are forecasting, it makes little sense to save one per cent by borrowing in the short term. Lock in low rates now.

8. Sell off other government assets, such as surplus lands and buildings. Ottawa has a multitude. The provinces should do the same, with their dysfunctional and politically mismanaged utilities, obsolete liquor store chains and monopolistic auto insurers among the first to go, for more billions of dollars.

9. Offer buyout packages to federal government employees not directly engaged in health, safety, security, defence or other vital work. Giving ~$500,000, on average, say, will pay off in less than five years for a person making around $80,000 and their benefits, office space, power, internet and other expenses.

10. Contract out more services to private companies. Accounting, payroll, office services, IT and many other things can be bid upon competitively and lower costs by billions of dollars.

11. Explicitly allow the provinces to use market mechanisms in their health provision. This introduces competition, choice and price transparency. It enhances the quality and timeliness of service provision and reduces the amount of money that Ottawa is required to send to the ever-demanding-and-never-reforming provincial regimes and their ossified, protective, unimaginative medical provision complexes.

12. Streamline permitting and review processes for projects with federal jurisdiction, with transparency and full public critical input and licence. The original streamlining introduced by the earlier government did not have widespread acceptance. Ensure that this version does, to enable job- and income tax-generating mining, energy, pipeline, hydroelectric, electrical transmission, transportation and other large projects to get done sooner with fewer cost- and uncertainty-inflating delays.

13. Vigorously legally counterattack any U.S. administration efforts to thwart or close down transborder gas or oil pipelines which contravene the Canada-U.S.-Mexico Free Trade Agreement and its investment-protection and free-flow-of-products provisions.

14. Remove all interprovincial barriers to trade and business. Remove these legal but unconstitutional restraints on trade within Canada which stifle billions of dollars of economic activity, personal mobility and job access.

15. Instead of an assault on the crucial oil and gas industry (Canada is the world’s fourth-largest producer; more than oil-rich Nigeria, Venezuela or Angola), find market-friendly and non-destructive ways of easing Canada into a lower CO2 emission future. These could include encouraging more use of natural gas, biomass and biogas and removing impediments to small modular nuclear reactors and new forms of energy storage. The latter is indispensable to making intermittent renewable energy such as wind and solar viable practically and commercially. Provisions could be made to enact trade sanctions on egregious deforesting nations such as Brazil and Indonesia. Destroying a central industry is idiotic while far worse emitters, China and India, are allowed to build huge new coal-fired power plants.

16. Develop a big network of small business and venture capital information and matchmaking portals. Canada has no problem starting small businesses, whether in mining, energy, advanced energy, IT, biotech or anything else. Publicizing the opportunities to investors and ensuring that entrepreneurs are putting their best feet forward is harder. It will become easier when there is more information, better financial and technical disclosure and public trust in the parties that are marketing themselves and making themselves fully accountable and legally liable when they do so. There are ways to make it so.

17. Create a realistic set of protocols for how to avoid any further public health emergencies similar to, or even different from, the current one (not just respiratory, but other infection or contagion pathways and not just viruses). There was already such a plan; however, it was not enacted. Ottawa should revise it and allocate a true budget for it. This will generate a tremendous amount of confidence and trust, enabling individuals and firms to be more confident in preparing for the future and investing in that future.

18. Provincial governments should use their legal authority to stop municipal zoning, permitting and other obstacles that impede construction of affordable housing. NIMBYism and other efforts by incumbent landowners to forestall new construction or higher density development are a major cause of higher land acquisition and construction costs in urban areas in Canada. If necessary, federal help could break some of these poverty-inducing and homelessness-creating logjams.

19. Present a credible plan for getting Canada out of its fiscal black hole within the next few years. Business, investor and citizen confidence and the financial capacity to deal with future challenges and crises, are all dependent on regaining top-level creditworthiness. Not to mention avoiding dire devaluation, service cuts and the other ramifications of revisiting the moribund austerity of the 1990s.

These are just a few ideas to chew on. Some of them may cause consternation; they can be a point of departure for elaboration or modification. They are not without some costs, but far less than the near-trillion dollars that this whole panicky lockdown fiasco and biohazard crisis have caused. Readers and all Canadians can add their own thoughts and proposals and not just leave things to politicians or experts.

Ian Madsen is a senior policy analyst with the Frontier Centre for Public Policy.

Photo by Caleb George on Unsplash.