Trudeau and Mulcair spar on deficits

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Trudeau and Mulcair sparring on the deficit partly reflects tactical positioning and partly reflects real policy differences.

With at least one poll suggesting Tom Mulcair’s New Democratic Party is within reach of securing a historic NDP majority government, the debate between the two opposition parties over fiscal policy has become considerably more pointed.

In this post, Canada Fact Check takes a look at the latest polling numbers and then assesses the fiscal positions being staked out by the Liberals and NDP.

First, the most recent polling numbers.

The latest polls

A Forum Research poll for the Toronto Star shows the NDP with enough support to win 174 seats – a slim majority in the expanded 338 seat house. The Liberals now sit in second place with 30 per cent support, while the Conservatives are slipping and have the backing of just 23 per cent.

Regionally, the Forum poll shows the NDP well ahead in four provinces with 54 per cent support in Quebec, 41 per cent in Manitoba and Saskatchewan, and 39 per cent in British Columbia.

In Ontario, the race appears to be quite a bit tighter with Forum showing the New Democrats leading with 36 per cent, the Liberals in second with 33 per cent and Harper’s Tories at 26 per cent support.

The Liberals lead in the Maritimes and the Conservatives remain ahead in Alberta.

In contrast to the Forum poll, other recent polls have not shown the NDP with sufficient support to secure a majority government. That said, all recently published polls have shown the NDP with at least a slight lead over rival parties.

Campaign tactics at play in Liberal, NDP fiscal debate

While the Conservatives have a long history of labelling their political opponents “spendthrifts”, the sniping between Trudeau and Mulcair on fiscal matters is something new and almost certainly a function of the consolidation of centre-left support behind the NDP suggested in recent polls.

In other words, the Liberals feel that they urgently need to make a bold move to reclaim at least some of their lost centre-left vote so as not to allow the NDP to position themselves as the strategic alternative to Harper. In a broader tactical sense, the federal Liberals are taking a page out of Ontario Premier Kathleen Wynne’s 2014 provincial election playbook when the Ontario Liberals attempted to project themselves (rightly or wrongly) as being to the left of Andrea Horwath’s NDP.

The NDP, on the other hand, believes that the best way to protect their lead is to take a defensive posture and portray themselves as fiscal moderates – with a social conscience. They will stick to the Conservative goal of balancing the budget short-term but unlike the Conservatives, are willing to increase spending on key social programs such as child care and health transfers to the provinces longer-term.

But whatever their tactical motives, what really matters are the specifics of the fiscal positions being taken by the two opposition parties.

Canada Fact Check first examines the Liberal fiscal positioning and then the New Democrats’.

Liberal spending priorities

Liberal leader Trudeau says a Liberal government will run deficits for three straight years and will double spending on infrastructure to stimulate economic growth.

According to a just released Liberal policy paper, the Liberal fiscal plan would see “a modest short-term deficit” of less than $10 billion for each of the first three years and then a balanced budget by the 2019-2020 fiscal year.

The policy paper suggests that over the next decade the Liberals would spend $125 billion on new infrastructure investment — about twice the amount the Conservatives have committed. Much of this new infrastructure would be financed through a new Canada Infrastructure Development Bank.

Liberal infrastructure investments would focus on three areas: public transit, social infrastructure such as affordable housing, and environmental projects like clean energy.

A second major Liberal fiscal plank is an initiative to stimulate the economy by means of a reduction in income tax rates for middle income earners.

The current top tax bracket starts on income over $138,586 with a rate of 29 per cent. Trudeau proposes to add a new tax bracket starting at $200,000, with a rate of 33 per cent. Liberals suggest this will raise about $3 billion, which they propose to re-allocate into a reduction of the middle tax-bracket rate from 22 per cent to 20.5 per cent, reducing the tax paid on income in the $44,700 to $89,400 range. They portray this redistribution of the tax burden as mildly stimulative and have been critical of Mulcair for not supporting their “tax the rich” scheme.

Trudeau and other Liberals have also criticized Mulcair for saying an NDP government would balance its first (2016-17) budget. At root, the Liberal leader is accusing the NDP of proposing the same, tight-fisted fiscal policies as the Conservatives.

Is there any truth to the Liberal accusations?

NDP spending priorities

Earlier this week, Mr. Mulcair promised for the first time that in spite of the economic slow down in the first half of the year, an NDP government would balance the books in the 2016-17 fiscal year.

“We’re of course going to finish the fiscal year on Mr. Harper’s watch – 2015-16 is his budget, but our first budget (2016-17) will be a balanced budget,” Mr. Mulcair said during a campaign stop in Hamilton.

So how can Mulcair bring in a balanced budget in 2016-17 given some fairly hefty NDP spending promises on the social side?

The key is to take a careful look at the likely timing of some of the key NDP spending initiatives.

First, Mulcair has promised that the NDP will create one million new day care spaces that can be accessed for no more than $15 per day – at a cost of roughly $5 billion annually to the federal treasury, once fully implemented in eight years.

But the money can only flow once child care agreements are negotiated with the provinces – and that will take time. As such, it is highly unlikely any money would flow from those agreements before the 2017-18 fiscal year – and perhaps not much even then.

Second, he has promised to restore the annual six percent  increase in health care transfers to the provinces, which could cost upwards of $35 billion over ten years.

Under the old formula, which was up for renewal, health transfers were increasing by six per cent every year. Under the new formula, introduced in the 2012 budget, transfers will continue to go up by six per cent until 2017-18. In 2017-18, the Conservative plan calls for health transfers to increase by an amount tied to the growth rate in Canada’s GDP, or three per cent per year – whichever is larger.

According to a report released by the Council of the Federation, the provinces estimate that they will receive about $36 billion less under the new Harper formula than the old one over ten years.

But when would Mulcair have to come up with the money to honour his six percent health care transfer promise?

Clearly, Mulcair wouldn’t have to come up with an increase in health transfers in his first budget (2016-17) because the existing, six percent formula would still be in place. But to honour his promise does Mulcair even have to come up with the increased health money in the 2017-18 budget – the second NDP budget should the NDP form a government on October 19th?

Not necessarily. If you read the fine print in his statements, Mulcair has said an NDP government would use any surplus to maintain health transfers at 6% starting in 2017-18. And a surplus in 2017-18 is very much in question given the economic uncertainties flowing from the recent collapse of oil prices and the resultant slow-down in the economy.

That said, while Mulcair may have some wiggle room to keep a lid on social spending in his first two budgets, he is committed to significantly increasing social spending in the mid-term. It is therefore fair to ask how he is going to pay for his spending promises assuming that if he doesn’t believe in running a deficit in the first year or two of an NDP government, he is unlikely to want to run deficits to finance increased social spending in the out years when economic growth can be expected to be stronger.

First, some of the NDP’s spending plans would be financed by scrapping Prime Minister’s Harper’s $2-billion income-splitting tax plan which would dis-proportionately benefit the better off. Mulcair would also not proceed with the Conservative proposal to almost double the allowable annual contribution to the TFSA savings vehicle. It should be noted that Trudeau shares these policies with Mulcair.

Most importantly – and in contrast to the Liberals – Mulcair has promised to introduce a “tempered” increase to the federal Corporate Tax rate. Mulcair hasn’t announced the exact amount of the rate increase but in a previous Canada Fact Check post, we suggested that the rate increase will likely be in the 2 – 3 percent range, likely phased-in over 2 or 3 years. More on the proposed Mulcair Corporate Income Tax increase can be found in that post.

Finally, Mulcair says that he would cancel subsidies to oil companies. While the exact amount of federal subsidy money flowing to the sector is difficult to pin down, a previous NDP release on the subject pegged the amount at $1.3 billion.

Is there room for greater fiscal stimulus?

A balanced budget by 2015-16 has long been a cornerstone of Conservative economic policy. But just how important is a 2015-16 (or even a 2016-17) balanced budget to Canada’s economic well-being?

According to Annex 2 – International Debt Comparisons, contained in the 2015 Conservative budget:

“According to official statistics published by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), Canada’s total government net debt is the lowest in the Group of Seven (G-7) and less than half the average of G-7 countries.”

The above assessment by two respected international financial agencies not particularly noted for their “lefty” thinking, does suggest there is fiscal room for some sort of short/mid-term stimulus in Canada. After all, “net debt” is as good a measure of a government’s fiscal health as any and the fact that mainstream economic agencies such as the IMF and OECD rank Canada as having the lowest net debt in the G-7, suggests that if any G-7 country has some room to increase spending to promote economic growth, it’s Canada.

Of course, the Conservatives included the references to the IMF and OECD in their 2015 budget not to make a case for deficit spending, but as part of a larger argument to convince credit rating agencies that Canada should maintain its coveted “AAA” rating.

That said, if the private sector is reluctant to spend because of an uncertain economy and weak consumer demand, then clearly that leaves only the government to pick up the slack. And it should be reassuring to all Canadian political parties that at least some elements of the international financial community believe that there is fiscal room in Canada to do just that.

Details will be in official party platforms

It’s early in the election but to date, both the Trudeau Liberals and the Mulcair New Democrats are clearly working within a somewhat more expansionary fiscal framework than the reigning Harper Conservatives. Their spending and revenue generating priorities may differ quite a bit – as do their spending time frames – but both parties seem to be comfortable with using at least some of the spending room that the OECD and IMF have identified in their reports.

And while their proposals to date are somewhat predictable and often tactical in nature, initiatives such as Trudeau’s Canada Infrastructure Development Bank and Mulcair’s national child care initiative, are clearly ideas whose time has come.

So, on fiscal matters the Liberals and New Democrats have gotten off to a reasonably good start. But as always, the devil is in the details and in general elections the details only become available when the parties release their official campaign platforms.

And that time can’t come too soon.

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3 Comments on "Trudeau and Mulcair spar on deficits"

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Genesio Paciocco
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The NDP has the plan too balance the budget and also get social spending go ahead the Fiberals Conservatives and Conservative Stephen Harper both men Trudeau and Harper voted for Bill C-51 and the NDP will repeal it out right and both Conservatrive Stephen Harper and Conservative Justin Trudeau should not get a single vote ie Bill C=51 VOTE NDP!!!

Karyl Willson
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Very interesting info!Perfect just what I was looking for!

MGiles
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A much more balanced and impartial report than some earlier posts. A very good analysis.

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