Or it wouldn’t, had not the government added two further conditions to its “no tax hikes” pledge: that it would make no cuts in transfers to provinces, or to persons (notably old age pensions and employment insurance). But these make up more than half the budget, and are slated to grow by 13.6 per cent over the next four years. To keep overall spending to our targeted $234 billion in 2014 would require cutting the whole $20 billion out of the rest of the budget: about one dollar in six.
Is that possible? Certainly not without a majority government, and probably not even then. So, in the short term, the government has a choice. It can either break its promise not to raise taxes, as the G and G have urged it should do. Or it can break its promise not to cut transfers, as, well, Terry Corcoran has suggested. The one thing it cannot do, if it has any intention of bringing the books back into balance by then, is sit tight, make a few cuts around the edges, and hope for a miracle. Which, of course, is precisely the policy course it is on.
Oh, and the bad news I promised you? Balancing the budget four years from now is the easy part. From here on in, the fiscal choices are only going to get harder. The retirement of the baby boomers over the next several decades will mean astronomic increases in costs, notably for health care, with relatively fewer people of working age to pay them. The C.D. Howe Institute’s Bill Robson estimates this represents a total unfunded liability in excess of $2 trillion.
Raise taxes, or cut spending. You think the debate is fierce now? We have not yet begun to fight.
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