RISK: Taxpayers will hold the bag for Liberal stimulus, says opposition

The economy has worsened since the election, Liberals say, so deficits will be bigger

A ballooning deficit will mean higher taxes in the long run, Conservative leader Rona Ambrose says.

“The Prime Minister should keep his promise: the promise to run a $10-billion modest deficit and balance the budget in four years; and he’s broken both those promises without any real explanation,” she says.

The Liberal government will announce its first federal budget this afternoon. Finance Minister Bill Morneau has said that Canada’s economic fortunes have worsened since the party was elected last fall, so deficits will be bigger, and likely last longer, than promised during the federal election.

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Before any new spending is factored in, this year’s budget deficit is predicted to be $18.4 billion. Including promised spending, some economists predict that could rise to as high as $30 billion.

One of biggest expected expenses is a multi-year infrastructure spending program. The Liberals have promised $20 billion of new spending over 10 years.

“Record-low levels of interest rates right now mean that this is an opportunity to invest in our future,” Trudeau told Parliament yesterday.

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“When the economy is growing slowly, that is the time to invest,” adds Francois-Philippe Champagne, Parliamentary Secretary to Finance Minister Bill Morneau. “That is what the IMF has said; that is what the World Bank has said; that is what most economists in this country have said.”

But low interest rates or not, “borrowed money has to be paid back,” says Ambrose. “[…] All of that leads to higher taxes, which is not a good recipe for the economy.”

The Conservatives are concerned that increases to small business and personal taxes will hurt Canada’s economy. The government has signalled that it could raise the capital gains inclusion rate,change how stock options are taxed, and alter the taxation of Canadian Controlled Private Corporations in today’s budget.

Ambrose says that in a recession, it’s acceptable to run modest deficits to stimulate growth, as the Conservatives did after the financial crisis. But the economy is growing right now, she pointed out, even as communities that depend on income from natural resources are struggling. The Bank of Canada predicts Canada’s economy will grow by 1.4 percent this year, not including any boost from the Liberals’ expected stimulus package.

The Liberals should consider public-private infrastructure investment, and personal tax credits as a means of boosting the economy, instead of infrastructure spending.

She cites the Home Renovation Tax Credit as a model strategy. “It was very expensive [and] created a deficit, but it got people spending money in their communities, on their own homes, very quickly. It created jobs quickly.”

This article first appeared on our sister publication, Advisor.ca

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Transcontinental Media G.P.